33Vol. 17 No. 1ISSN 0872-84969 7 7 0 8 7 2 8 4 9 0 0 7ISSN 0872-8496EURO ASIA JOURNAL OF MANAGEMENT 33 Vol. 17 No. 1JUNE 2007Quality of Board of Directors, Ownership Structure andLevel of Voluntary Disclosure of ListedCompanies in ThailandThe Motivation of NGO Leaders in MacauMarket Structure and Performance in Macau BankingValues in the Marketing of National Parks in China:An Exploratory Application ofMeans-End Chain Theory

AIM AND SCOPE Euro Asia Journal of Management (EAJM) is devoted to provide a forum for discussion over a wide range of management issues defined in the broad sense. However, particular emphases are placed on the advancement of management theory and practice in Asia, especially China, and the European continent. Published twice yearly by the Macau Foundation, EAJM welcomes submissions in the following areas: Accounting and finance, information technology management, strategic management, cross-cultural and international management, organizational behavior and learning, human resources management, public sector management, corporate governance, quality management, and tourism management. EAJM will include scholarly peer-reviewed papers in the form of empirical studies, qualitative inquiries, case studies, as well as critical literature reviews. From time to time, special sections are opened for debates, interviews, and commentaries. EDITORIAL BOARD Nelson António, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Virgínia Trigo, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Carlos Noronha, University of Macau, Macau Tiffany Lam, University of Macau, Macau EDITORIAL ADVISORY BOARD Tetsuo Abo, Teikyo University, Japan Douglas Allen, University of Denver, USA Robert Boyer, Centre D’etudes Prospectives D’economie Mathematique, France Eduardo Gomes Cardoso, Instituto para o Desenvolvimento da Gestão Empresarial, Portugal Su Mi Park Dahlgaard, Linköpings University, Sweden Harukiyo Hasegawa, University of Sheffield, UK Hideo Inohara, Sophia University, Japan Jorge Correia Jesuino, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Ekkehard Kappler, University of Innsbruck, Austria Martin Kenney, University of California at Davis, USA Mário Murteira, Instituto Superior de Ciências do Trabalho e da Empresa, Portugal Terutomo Ozawa, Colorado State University, USA Sung Jo Park, Free University of Berlin, Germany Tanya Phonanan, ASEAN Human Resource Management Federation & Thompson Television Thailand Wan Ahmad Shaffie, Malaysian Association of Human Resources Management & Menara Maybank Malaysia Hannes Streim, Bochum University, Germany Kay-Chuan Tan, National University of Singapore, Singapore Robert Terpstra, University of Macau, Macau Ingemar Torbiörn, University of Stockholm, Sweden Tadashi Umezawa, Toyko Keizai University, Japan Gerald Vinten, European Business School, UK Youmin Xi, Xian Jiaotong University, China Oliver Yau, City University of Hong Kong, Hong Kong Shuming Zhao, Nanjing University, China Note: The views of articles may not be those of the Journal.

133 Vol. 17 No. 1, June 2007http://www.geocities.com/eajm2002CONTENTSIndexed in Ulrich’s Periodicals Directory andCabell’s Directory of Publishing Opportunities in Management1. Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure ofListed Companies in Thailand ................................................................................................................ 3Jakkravudhi Chobpichien, Suan Dusit Rajabhat University, ThailandHasnah Haron and Daing Nasir Ibrahim, Universiti Sains Malaysia, Malaysia2. The Motivation of NGO Leaders in Macau .......................................................................................... 41Choi Mio Kuan and Siew-Huat Kong, University of Macau, Macau3. Market Structure and Performance in Macau Banking .................................................................... 61Ng San U, Macao Economic Services, MacauFu Xiaoqing, University of Macau, Macau4. Values in the Marketing of National Parks in China: An Exploratory Application ofMeans-End Chain Theory ...................................................................................................................... 79Catherine Sarlandie de La Robertie and Cheng Baifang, CREM, Universite de Rennes, France

Euro Asia Journal of Management Issue 33, Vol. 17, No.1, June 2007, pp. 3-39 QUALITY OF BOARD OF DIRECTORS, OWNERSHIP STRUCTURE AND LEVEL OF VOLUNTARY DISCLOSURE OF LISTED COMPANIES IN THAILAND JAKKRAVUDHI CHOBPICHIEN1 HASNAH HARON2 and DAING NASIR IBRAHIM 3 ABSTRACT The study investigates whether board of directors (BOD) and ownership structure influence the voluntary disclosure index (VDI) of public listed companies in the Stock Exchange of Thailand. The findings suggest that VDI is influenced by the quality of BOD and the ownership structure of the firm. The higher the quality of BOD, the higher is the VDI. This relationship is moderated by the largest shareholder controlling ownership. In addition, this relationship appears to be weaker for companies with a high concentration compared to a low concentration of CEO controlling ownership. Finally, firm characteristics as control variables comprising size of company, auditor type, and earnings return are found to have a significant influence on VDI. 1Suan Dusit Rajabhat University, Thailand. Tel: +60-1-7488-9521. Email: chobjak@hotmail.com 2 Corresponding author. School of Management, Universiti Sains Malaysia, Malaysia. Tel: +604-6533888 ext 3435. Email: hhasnah@usm.my 3 School of Management, Universiti Sains Malaysia, Malaysia. Tel: +604-6533888 ext 2790. Email: dainasir@usm.my

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 4 INTRODUCTION Disclosure by firm managers represents an opportunity to reduce the information asymmetry that exists between firm managers and investors. This is because a negative relationship exists between the disclosure levels of the companies and information asymmetry. The incentive to disclose in annual reports is that firm managers can reduce investors’ concern as to whether the management is acting in their best interests. Annual reports provide a means for managements to convince investors that they are optimizing shareholders’ wealth. In fact, managers may choose to disclose more than is mandated by corporate law. Such disclosure is termed voluntary disclosure. The greater the disclosure by companies in the annual reports, the greater the transparency (Balachandran & Bliss, 2004). Transparency and adequate disclosure are also important in order to ensure the protection of minority shareholders’ rights. Outsiders can use relevant company information, such as company objectives and policies, financial results, majority shareholder ownership structure and executive directors’ remuneration to make decisions. The adoption of internationally accepted disclosures (sometimes voluntary in Thailand) represents free choice on the part of company managements to provide accounting and other information deemed relevant to the decision needs of the users of their annual reports (Meek et al., 1995). In addition, in a study by Toplin et al. (2002), 60 annual reports from companies in Australia, Hong Kong, Malaysia, Philippines, Singapore and Thailand are analyzed to create several compliance indices based on all universally applicable IAS rules at the time. The companies in the four Asian countries with British colonial links had lower levels of non-disclosure than Philippines or Thailand. However, the problem of voluntary disclosure in Thailand comes from a study by the Center for International Financial Analysis & Research (CIFAR, 1995). There is a perception that the adequacy in voluntary disclosure in Emerging Capital Markets, including Thai public listed companies, was in the bottom half in terms of disclosure levels, and lags behind that in developed capital markets. Companies in Asia appear to have fewer incentives for transparent disclosure than their Anglo-American counterparts (Ball et al., 2003). This is probably due to the fact that the disclosure orientation of companies in Asian countries is significantly influenced by the cultural environment in which they operate (Gray, 1988). The disclosure orientation of companies in Thailand is also greatly influenced by the form of ownership and management structure (Limpaphayom, 2000). Thai listed companies are usually controlled by a family group whose staffs are in senior positions and who also function as the largest shareholder. Thai ownership is highly concentrated and most of the shares are owned by executive directors. As a result, managers and owners are the same person (Wiwattanakantung, 2000). An important mechanism in protecting shareholders is the board of directors and its fiduciary responsibilities. This is because the board of directors is supposed to monitor managers and control the companies on behalf of the shareholders. The board is expected to formulate

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 5 corporate policy, approve strategic plans, and, if necessary, remove management. However, the board of directors of most listed companies in Thailand is mostly controlled by large shareholders (Limpaphayom, 2000). Ownership concentration has been a key player driving the Thai economic boom since the late 1950s. This economic prosperity was characterized by the emergence of family business groups which became an important constituent in the business community through the government’s promotion policies and infusion of foreign capital, as well as through their own entrepreneurial skills. The groups later formed ‘business conglomerates’, embracing between 15 to 90 associated firms per group, and had oligopolistic status in various industries such as finance, import substitution, and agro industry (Suehiro, 1989). The pattern of family business persisted even after the firms were listed in the Stock Exchange of Thailand (SET), where neither foreign ownership nor state ownership has ever been prominent since the SET was established in 1975 (Dhnadirek & Tang, 2003). Thai listed firms preferred debt financing, usually from banks, because they did not have to worry about the effects of ownership dilution which may be incurred through equity financing (Endo et al., 2000). Furthermore, in industries like finance and insurance, banks were at the centre of the business group and used their capital to finance all the firms in the group (Suehiro, 1989). Family members were often insiders, meaning that they were major shareholders, managers and members of the board of directors, as well as the ones who nominated outside directors. The role of outside directors per se is minimal; usually only two persons are nominated to the board committee simply to fulfill the requirement of the Securities and Exchange Commission (SEC). Furthermore, as firm ownership was dominated by inside shareholders, the outside shareholders (those who did not hold management positions in the firm) would find it difficult to garner sufficient votes to influence or oust incumbent management hence, restricting the role of the market in corporate control (Limpaphayom, 2000). Such unique environments in Thailand provide an opportunity to examine empirically the effect of ownership on the relationship of board of directors’ quality and voluntary disclosure. Some studies have examined corporate governance characteristics that may influence voluntary disclosure practice (e.g. Balachandran & Bliss, 2004; Chau & Gray, 2002; Chen & Jaggi, 2000; Evans, 2004; Forker, 1992; Gul & Leung, 2004; Haniffa & Cooke, 2002; Ho & Wong, 2001; Hope, 2003; Liu, 2004; Mangena & Pike, 2005; McKinnon & Dalimunthe, 1993; Mohd-Nasir & Abdullah, 2005; Willekens et al., 2004). However, they examined the effect of various corporate governance characteristics and very few have actually examined the effect of a set of the corporate governance characteristic. The main objective of this study is to examine the relationship between the level of the board of directors’ quality (BOD) and the extent of voluntary disclosure of listed companies in Thailand. The other objective of the study is to investigate whether ownership structure affects the relationship between the level of the board of directors’ quality and the level of voluntary disclosure. Under the implicit assumption of agency theory, this study hypothesized that improved BOD and the ownership structure of Thai public listed companies lead to more voluntary disclosure practices and the voluntary disclosure practices are used as a means to reduce information asymmetry and agency problems.

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 6 However, the findings in Thailand can be generalized to other countries or economies with similar institutional backgrounds as Emerging Capital Market (ECM) is understood to mean a stock market located in a developing country. At present, there are 47 countries whose capital markets are considered ECMs by the International Finance Corporation (IFC, 1994, as cited in Saudagaran & Diga, 1997); 14 countries are in Africa i.e. Botswana, Cote d’Ivoire, Cyprus, Egypt, Ghana, Kenya, Mauritius, Namibia, Nigeria, South Africa, Swaziland, Trinidad and Tobago, Tunisia, and Zimbabwe; 11 countries are in Asia i.e. Bangladesh, China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Sri Lanka, Taiwan, and Thailand; five countries are in Europe i.e. Greece, Hungary, Poland, Portugal, and Turkey; 13 countries are in Latin America i.e. Argentina, Barbados, Brazil, Chile, Colombia, Costa Rica, Ecuador, Jamaica, Mexico, Panama, Peru, Uruguay, and Venezuela; and four countries are in the Middle East i.e. Iran, Jordan, Morocco, and Oman. The rest of this paper is organized as follows: The next section reviews the related literature and proposes hypotheses that will be tested in another section. Then the research design, the sample and the data design are discussed and the empirical results presented. Finally, some conclusions on the issue are drawn. LITERATURE REVIEW Agency Theory, Board of Directors and Corporate Disclosures Ho and Wong (2001) argued that Jensen and Meckling’s (1976) positive agency theory provides a framework linking disclosure behavior to corporate governance. Corporate governance mechanisms are introduced to control the agency problem and to ensure that managers act in the interests of shareholders. In theory, the impact of internal governance mechanisms on corporate disclosures may be complementary or substitutive. If it is complementary, the agency theory predicts that a greater extent of disclosure is expected since the adoption of more governance mechanisms will strengthen the internal control of companies and provide an intensive monitoring package for a firm in order to reduce opportunistic behaviors and information asymmetry (e.g. Leftwich et al., 1981; Welker, 1995, as cited in Ho & Wong, 2001). Nevertheless, managers were not likely to withhold information for their own benefit under such an intensive-monitoring environment, which leads to improvements in disclosure comprehensiveness and the quality of financial statements. On the other hand, if the relationship is substitutive, companies will not provide more disclosure for more governance mechanisms since one corporate governance mechanism may substitute for another. If information asymmetry in a firm can be reduced due to existing internal monitoring packages, the need to install additional governance devices is smaller. These apparently conflicting viewpoints on the impact of corporate governance have not been totally resolved (Ho & Wong, 2001). In spite of this theoretical ambiguity, Hill (1999) suggested that corporate governance is indeed a complex

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 7 matter; that its role relates not only to issues of efficiency but also accountability, and that since many mechanisms are flawed, it is desirable to have a system of overlapping checks and balances. Board Ownership and Monitoring Fama and Jensen (1983) have argued that board monitoring mechanism works reasonably well. However, empirical studies of this issue have produced mixed results. Morck et al. (1988) argued that outside board members are more likely to monitor management rigorously if they hold an equity stake in the corporation. They found evidence of a significant relationship between board’s stock ownership and the firm’s stock market performance. They concluded that the convergence between shareholder and board interests will result in better monitoring and will contribute positively to shareholder’s wealth. Weisbach (1988), on the other hand, studied the relationship between board’s composition, board’s stock ownership, and the use of outcome-based control. As expected, he found that ‘insider’ boards hold significantly more stock on average than ‘outsider’ boards. He concluded that it is the board’s composition (the proportion of insider versus outsider boards) that determines performance and not ownership. Hillman and Dalziel (2003) argued that the monitoring function of boards, also described as the control role (e.g. Mace, 1971; and Zahra & Pearce, 1989), has consumed the attention of corporate governance researchers from a host of disciplines (i.e. law, finance, sociology, and strategic management) for years. The monitoring function refers directly to the responsibility of directors to monitor managers on behalf of shareholders. The theoretical underpinning of the board's monitoring function is derived from the agency theory, which describes the potential for conflicts of interest that arises from the separation of ownership and control in organizations (e.g. Berle & Means, 1932; Fama & Jensen, 1983). Agency theorists see the primary function of boards as monitoring the actions of agents such as managers to protect the interests of principals as owners (e.g. Eisenhardt, 1989; Jensen & Meckling, 1976; Mizruchi, 1983). Similarly, legal and finance scholars emphasize the fiduciary responsibilities of directors to ensure that managers are acting in the interest of shareholders (e.g. Berle & Means, 1932; Mace, 1971, as cited in Hillman & Dalziel, 2003). HYPOTHESES DEVELOPMENT Board of Directors’ Quality and Voluntary Disclosure The relationship between the quality of the board of directors and the level of voluntary disclosure of companies has been examined in previous research. Based on previous studies, this study identified the quality of the board of directors to comprise the following:

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 8 Board’s leadership structure A study by the SET (2003) has shown that 87 percent of Thai public listed companies separate the title of chairman of the board from that of the head of management teams. Nonetheless, only 21 percent of Thai public listed companies have independent chairmen. A possible reason could be that Thai public listed companies were initially family-owned and it is the majority shareholders that elect their chairmen. The board’s leadership structure or the position of the chairperson of the board was found to be an important determinant in improving the effectiveness of the board’s monitoring. Studies by Balachandran and Bliss (2004), Gul and Leung (2004), and Williams (2002) have found that CEO duality could negatively affect the level of voluntary disclosure. This discussion leads the authors to hypothesize that if the titles and authority of the board’s chairman and the head of management team are clearly separated, it could positively affect the level of voluntary disclosure. Board’s composition A study by the SET (2003) has found that 98 percent of public listed companies in Thailand have at least three independent directors. In-depth analysis reveals that 67 percent have three independent directors while 31 percent have four to 14 independent directors. Only two percent of the companies have less than three independent directors. The results also show that only four percent of the companies have the proportion of having more than half of the board who are independent directors. The possible reasons are large board sizes, possible misunderstanding of the qualifications of an independent director, the difficulties involved in recruiting independent directors, and the cost involved especially in recruiting an independent director in small companies. In addition, there is no requirement in the Public Company’s Act (PCA) of 1992 for Thai public listed companies to appoint independent non-executive directors. However, the SEC and the SET require listed companies to appoint at least two outside directors who are independent of the majority shareholders and the management. The objective of the requirement is to have directors who are able to provide an effective and unbiased oversight of the way in which the company is managed. Independent non-executive directors are supposed to safeguard the interests of the company, which includes minority shareholders, against any abuse by the management. They are required to give opinions on the related transactions and provide comments in the annual report (Nikomborirak, 2001). The board’s composition is important as the primary role of the board is to control the management function of an organization (Pound, 1995). A board comprising a number of independent non-executive directors (INDs) will enhance the behavior of the management of an organization (Rosenstein & Wyatt, 1990). Additionally, a higher proportion of independent non-executive directors on the board should result in more voluntary corporate disclosures (Fama & Jensen, 1983). The higher the proportion of independent non-executive directors, the higher is the quality of the information disclosed (Forker, 1992). Willekens et al. (2004) found that the board’s independence could positively affect the level of voluntary disclosure. This discussion leads the authors to hypothesize that if more than 50 percent of the directors on the board are

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 9 INDs, they could positively affect the level of voluntary disclosure. This is supported by studies by Balachandran and Bliss (2004), Mohd-Nasir and Abdullah (2005), and Williams (2002). Board of directors’ meetings The board of directors’ meetings should be scheduled in advance. At the meetings, the chairman of the board should promote prudent consideration and allocate appropriate time for the management to present issues adequately and enough for the directors to broadly discuss important matters with care. It is the duty of the directors to attend every board meeting, except with reasonable excuses (SET, 2001). A study by the SET (2003) found that on average, nine board meetings were held in 2002. Eleven percent of companies held four meetings a year. In terms of sectors, the boards of these five sectors meet most frequently; the sectors are: banking (13 times); jewelry and ornaments (12 times); energy, finance, and securities, and property development (11 times). This study shows that 45 percent of the listed companies disclose the total attendance of each director in their annual reports. Some companies choose to disclose the details expressed as a percentage rather than stating each director’s actual attendance. With regards to the frequency of board meetings, Vafeas (1999) found that the annual number of board meetings (more than 11 times) is inversely related to firm value. This suggests that board activity, measured by board meeting frequency, is an important dimension of board operations. Lipton and Lorsch (1992) found that the most widely shared problem that directors face is the lack of time to carry out their duties and that (Conger et al., 1998) the amount of time spent in a board meeting is an important means to improve the effectiveness of a board. However, empirical studies on the frequency of board meetings have produced mixed results. Thus, attendance at board meetings is only one indicator of a director’s contribution to the company and does not show whether a director actually contributes actively to board discussions (S&P & CGFRC, 2004). This discussion leads the authors to hypothesize that if all directors were to attend every board meeting, this would positively influence the level of voluntary disclosure. Board’s controlling system and internal audit The board of directors should provide, maintain, and review a controlling system in which financial, operations, and compliance controls are incorporated. The system should also comprise risk management and pay a great deal of attention to all the early warning signs and extraordinary items. The board should commence internal audit activities by setting up a separate unit within the company to handle them. A study by the SET (2003) has shown that on average, 67 percent of Thai public listed companies’ report that their internal control is in place. The study also found that 75 percent of the listed companies establish their own internal audit units, eight percent employed outsiders, two percent have their parent companies perform the function, and the remaining 15 percent do not disclose any information at all about their internal audit function. 75 percent of the internal audit functions report solely to the audit committee while only 35 percent report to the audit committee and the managing director or the board. With regards to the board’s controlling system and internal audit, Rezaee (2003) found that the internal audit function is the first line of defense against fraud. Internal audit now

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 10 focuses on a broad range of activities and is becoming an integral part of corporate governance. Willekens et al. (2004) found that the internal audit department could positively affect the level of voluntary disclosure. This discussion leads the authors of this paper to hypothesize that the existence of an internal audit department in the company could positively affect the level of voluntary disclosure. Audit Committee’s (AC’s) leadership structure The board should provide for committees, especially for audit committees, to help the board in studying various issues in detail and screening workload according to certain situations. It should be clearly provided in the policy and the framework regarding qualities of members in the committees, their job responsibilities, conduct of meetings, and reporting to the board. All or most members of the committees should be non-executive directors while chairmen of the committees should be independent non-executive directors. With regards to the audit committee’s leadership structure, Spangler and Braiotta (1990) found a positive association between the AC’s effectiveness and transformational leadership and some transactional leadership characteristics (contingent rewards and active management being the exception). Haniffa and Cooke (2002) found that the position of the chairperson is thought to be important in improving the board’s effectiveness. Studies by Berg and Smith (1978), Donaldson and Davis (1991), and Rechner and Dalton (1991) found that independent non-executive chairpersons assist in improving the company’s performance. They predicted that there is a positive association between a non-executive chairperson and the extent of voluntary disclosure of information. In contrast, they found that the chairperson as non-executive director is negatively associated with the extent of voluntary disclosure and has the highest regression coefficient. The findings suggested that a non-executive chairperson, as an agent, obtains greater utility by keeping private information secret. However, Liu (2004) provided evidence that audit committees comprises of independent non-executive directors enhance disclosure quality. This discussion leads the authors of this paper to hypothesize that if the chairman of the AC is an independent non-executive director, he could positively affect the level of voluntary disclosure. AC’s composition The SET’s best practice guidelines for audit committees (SET, 1999a, 1999b) stipulated that AC members should have at least three INDs and the number of AC members should be between three to five people; all or most members of the committees should be non-executive directors. As cited in a study by the SET (2001a), it was found that at least one member of the audit committee is an employee of the firm, its subsidiary, or associated firm, representing major/controlling shareholders, a relative of the management, other blockholders, business group, bank affiliated, former employee, and other business relationship. With respect to the audit committee’s composition, Klein (2002) suggested that the independence of the AC may be affected by the independence of the board in general. Pincus et al. (1989) found a positive association between the establishment of ACs and the percentage of outside directors on the board. Balachandran and Bliss (2004), Ho and Wong (2001), and Liu

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 11 (2004) found that members of the AC who are INDs could positively affect the level of voluntary disclosure. This discussion leads the authors to hypothesize that if at least three members of the AC are INDs, they could positively affect the level of voluntary disclosure. AC’s meetings The audit committee should hold meetings to consider matters such as compliance of the financial statement with the accounting standards and also if there is a change in accounting policies made by the company. These matters should be considered before submission to the board of directors for disclosure to the shareholders and general investors. The frequency of the meetings in each year will depend on the size of the business and the duties delegated so as to ensure that the work performance of the audit committee meets the objectives which have been intended for. The Best Practice Guideline for audit committees of the SET (1999a, 1999b) stated that the audit committee meetings should be held on an average of four times a year. It was found that 35 percent of Thai listed companies have more than four audit committee meetings in 2002 while 30 percent have four audit committee meetings. Most of the audit committees that met less than four times per year were the newly listed companies (as cited in SET, 2003). McMullen and Raghunandan (1996) found that companies with reporting problems had less frequent audit committee meetings. Scarbrough et al. (1998) surveyed chief internal auditors (CIA) and found a positive association between the AC’s independence and the frequencies of meetings with internal auditors (IAs) as well as a review of the IA’s work. Abbott and Parker (2000) studied auditor selection for 500 companies and found that firms with audit committees that met at least twice per year were more likely to use specialist auditors. Nevertheless, Liu (2004) found that the AC’s meeting frequency positively affect the level of voluntary disclosure. This discussion leads the authors of this paper to hypothesize that if all AC members were to attend every AC meeting, it could positively affect the level of voluntary disclosure. AC’s knowledge and expertise As one of the roles of audit committees is to review the financial statements, the educational background of the members of the audit committee is important. The SET requires that at least one member of the audit committee must have an accounting or finance background. The results of a study by the SET (2003) indicated that 80 percent of Thai public listed companies have at least one member of the audit committee with an accounting or a finance background, either educational or working experience. Only nine percent have all members of the committee with these qualifications. In terms of accounting or finance education, 58 percent of the companies have at least one member of the audit committee with a bachelor degree in either field. The remaining 20 percent can be divided into three groups: five percent do not have any member of the audit committee with the relevant background, 14 percent are unable to identify the background and 1 percent does not have an audit committee at all. The AC’s knowledge and expertise will improve its effectiveness as they would be able to probe management with the right questions and assist auditors in their investigations (Levitt, 2000). Felo et al. (2003) found that the quality of financial reporting was positively related to the existence of financial expertise in the audit committee. Mangena and Pike (2005) found that

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 12 there exists a significant positive association between the quality of interim financial reporting and the presence of financial expertise on the AC. This discussion leads the authors of this paper to hypothesize that if at least one AC member has a financial or an accounting background, he could positively affect the level of voluntary disclosure of the company. Remuneration Committee (RC)’s leadership structure The board should form a remuneration committee to assist it in studying various issues in detail and screening workload according to certain situations. It should be clearly provided in the policy and the framework regarding the qualities of members in the committees, their job responsibilities, conduct of meetings, and reporting to the board. All or most members of the committees should be non-executive directors while the chairmen of the committees should be independent non-executive directors (SET, 2001). A study by the SET (2003) found that only 19 percent of Thai public listed companies established remuneration committees. Of those that do not have remuneration committees, 28 percent stated their reasons for not forming one. Some of the companies stated that the size of their company is too small. Others stated that they already have an appropriate procedure for determining the remuneration package, that is involve the whole board when setting the directors’ remuneration. The study by the SET (2003) also found that 10 percent of the listed companies that have remuneration committees have a non-executive director as their chairman. As cited in Haniffa and Cooke (2002), the position of the chairperson is also thought to be important in improving the effectiveness of the board. Studies by Berg and Smith (1978), Donaldson and Davis (1991), and Rechner and Dalton (1991) found that independent non-executive chairpersons do help to improve the company’s performance. They predicted that there is a positive association between a non-executive chairperson and the extent of voluntary disclosure of information. This discussion leads the authors of this paper to hypothesize that if the chairman of the RC is an IND, he could positively affect the level of voluntary disclosure. RC’s composition A study by the SET (2003) found that 14 percent of the listed companies in Thailand that have a remuneration committee have non-executive directors as the majority of the remuneration committee members. A remuneration committee is not required by law or by SEC regulations. The remuneration of directors requires a vote of 75 percent of the shareholders. Since many listed companies are still family run, small shareholders often own less than 10 percent equity share and thus are not able to regulate the compensation of directors. In such companies, large shareholders are thus able to provide excessive compensation to friends and families or nominee directors. However, several companies that have a significant foreign holding are voluntarily introducing remuneration committees for greater transparency and efficiency in the management of their personnel (Nikomborirak, 2001). The RC is one of the most important recommendations of the Cadbury Committee (Cadbury Committee Report, 1992). The RC would be able to assist in enhancing accountability through appropriate information disclosure, and hence, instill greater confidence in the company’s corporate governance system. Remuneration committees were recommended to

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 13 include only non-executive directors as there is a clear conflict of interest when executive directors participate in their own compensation decisions (Diacon & O’Sullivan, 1996). Vafeas and Afxentiou (1998) examined changes in the composition of remuneration committees following the adoption of the SEC compensation disclosure rule 33-6962 (US SEC, 1992, as cited in Vafeas & Theodorou, 1998). They found that firms remove a significant number of corporate executives from remuneration committees following the rule and replace them with non-executives holding a relatively high number of outside directorships. One possible interpretation for this result was that in fear of market pressure, firms restructure their monitoring committees to be more independent, in accordance with the interest of their shareholders. This discussion leads to the hypothesis that if more than half of the RC members are non-executive directors, they could positively affect the level of voluntary disclosure. This study assigns a score of 1 for compliance and 0 for non-compliance and is scaled by the total number of items (i.e. 10 scores). Higher scores indicate a stronger board of director quality and predict a positive coefficient on the level of voluntary disclosure. It is hypothesized that: H1: There is a positive relationship between the level of the board of directors’ quality and the level of voluntary disclosure of companies listed on the SET. Board of Directors’ Quality, Ownership Structure and Voluntary Disclosure The most recent research posits that ownership structure and/or board composition will affect disclosure (e.g. Balachandran & Bliss, 2004; Chau & Gray, 2002; Chen & Jaggi, 2000; Evans, 2004; Forker, 1992; Gul & Leung, 2004; Haniffa & Cooke, 2002; Ho & Wong, 2001; Hope, 2003; Liu, 2004; Mangena & Pike, 2005; McKinnon & Dalimunthe, 1993; Mohd-Nasir & Abdullah, 2005; and Willekens et al., 2004). However, empirical studies of this issue have produced mixed results. Thus, the contribution of this study is to treat ownership structure as moderator variables. This is because specific factors are often assumed to reduce or enhance the influence that specific independent variables have on the specific responses in question (dependent variable). Ownership structure is a qualitative (characteristics of the largest shareholder controlling ownership) and quantitative (percentage of shares held by CEO) variable that affects the direction and/or strength of the relation between an independent or predictor variable and a dependent or criterion variable. Specifically, within a correlation analysis framework, a moderator is a third variable that affects the zero-order correlation between two other variables. In the more familiar analysis of variance (ANOVA) terms, a basic moderator effect can be represented as an interaction between a focal independent variable and a factor that specifies the appropriate conditions for its operation.

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 14 Managerial ownership This study would like to examine the effect of ownership structure on the relationship of the board’s quality to voluntary disclosure. Ownership structure is confined only to managerial ownership, that is, the percentage of ordinary shares held by a CEO, which also includes their deemed interests (McClelland & Barker III, 2004). When managerial ownership is low, there is a greater agency problem; that is, the manager has greater incentives to consume perks and reduce incentives to maximize job performance. Hence, outside shareholders will increase the monitoring of the manager’s behavior to reduce the agency problem (Jensen & Meckling, 1976). Monitoring by outside shareholders increases costs of the firm. However, monitoring by outside shareholders may be reduced if managers can provide voluntary disclosure, that is, voluntary disclosure is a substitute for monitoring. Bathala and Rao (1995) found a negative relationship between board ownership and the proportion of outside directors on the board. Beatty and Zajac (1994) found that companies with a lower level of board’s ownership are associated with a higher level of firm monitoring. Higher level of monitoring is represented by a larger percentage of outside directors or separate CEO and board chairman positions. Thus, an increase in board ownership will result in less monitoring, i.e. a lower proportion of outside directors and a more unitary leadership structure. Whidbee (1997) studied the relationship between determinants of the board composition in the USA. He found that board composition reflects the ownership structure of the firm. In particular, he found that managers with high equity stakes use their voting rights to exclude outside directors from the board membership. There are countervailing incentives for managers to reduce the quality of accounting information. The voting rights included in equity ownership make managers less subject to career concerns, the discipline of the product market, monitoring by outside shareholders, and value-enhancing takeovers (Gompers et al., 2003 as cited in Brown & Caylor, 2006). Thai ownership is highly concentrated and most of the shares are owned by executive directors. As a result, managers and owners are the same person (Wiwattanakantung, 2000). Therefore, disclosure will be greater for companies with diffuse ownership because it helps owners to monitor the behavior of the management as predicted by the agency theory (e.g. Craswell & Taylor, 1992; Haniffa & Cooke, 2002; Hossain et al., 1994; Leftwich et al., 1981; McKinnon & Dalimunthe, 1993; Naser, 1998; and Raffounier, 1995). Thus, this study hypothesized that: H2: A high concentration of CEO controlling ownership will negatively moderate the relationship between the level of the board of directors’ quality and the level of voluntary disclosure of companies listed on the SET. Largest shareholder controlling ownership According to the SET and Wiwattanakantung’s (2000) study, for a shareholder to have a controlling ownership, he must own at least 25 percent of the shares of the company. However, the board of directors of most listed companies in Thailand is mostly controlled by large shareholders (Limpaphayom, 2000). Where ownership is coupled with control (that is, ownership is concentrated in the hands of shareholders), the agency problem addresses another

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 15 type of conflict of interest, that is, between the controlling (major) and non-controlling (minor) shareholders. This study would like to examine the role of the major shareholders on the relationship of the board’s quality to voluntary disclosure. Thus, this study hypothesized that: H3: The largest shareholder controlling ownership will moderate the relationship between the level of the board of directors’ quality and the level of voluntary disclosure of companies listed on the SET. Ownership concentration can be an efficient monitoring mechanism because it is an incentive for major shareholders to bear monitoring costs since they are likely to obtain substantial benefits from active monitoring (Shleifer & Vishny, 1986). Dhnadirek and Tang (2003) have found that major shareholders who are not part of the management may help to enhance the quality of financial reporting but if major shareholders are part of the management, they will be less inclined to provide quality financial reporting. This study would like to examine the role of the major shareholders who are not part of the management on the relationship of the board’s quality to voluntary disclosure. Thus, this study hypothesized that: H3a: The presence of the non-executive director, largest shareholder-controlling ownership will positively moderate the relationship between the level of the board of directors’ quality and the level of voluntary disclosure of listed companies on the SET. Minority expropriation may arise when ownership is concentrated in a specific group, particularly individuals/family (Shleifer & Vishny, 1997). In Thailand, the business sector has been dominated by the Chinese and most companies in Thailand are family owned and family members are often insiders, meaning that they are major shareholders, managers and members of the board of directors, as well as the ones who nominate outside directors (Dhnadirek & Tang, 2003). Chen and Jaggi (2000) suggested that independent non-executive directors’ independence in family controlled firms may become impaired and consequently, their influence on the disclosure of comprehensive financial information may be weaker than in non-family controlled firms. This study would like to examine the role of the major shareholders who are members of a family on the relationship of the board’s quality to voluntary disclosure. Thus, this study hypothesized that: H3b: The presence of the family member, largest shareholder-controlling ownership will negatively moderate the relationship between the level of the board of directors’ quality and the level of voluntary disclosure of listed companies on the SET. Firm Characteristics as Control Variables There has been extensive empirical work relating firm-specific characteristics to the extent of voluntary disclosure based on a number of theoretical arguments for structure-related characteristics which include agency theory, information and political costs, proprietary costs, and capital need such as debt-equity ratio (e.g. Hossain et al., 1995) and firm size (e.g. Cooke, 1989; Haniffa & Cooke, 2002; and Hossain et al., 1995); performance-related characteristics which include legitimacy theory such as liquidity ratio (e.g. Hossain et al., 1994), support continuance and compensation such as rate of return (e.g. Singhvi & Desai, 1971), and signaling

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 16 theory such as profit margin (e.g. Singhvi & Desai, 1971); and market-related characteristics which include capital need, foreign exchange listing requirements such as scope of business operations (e.g. Hossain et al., 1994), reputation costs and signaling agency costs such as audit firm size influence (e.g. Singhvi & Desai, 1971). Thus, this study will use firm characteristics as control variables. RESEARCH DESIGN Sample This survey covers all non-financial companies (371 companies) listed on the Stock Exchange of Thailand (SET) as of 2004, including 317 listed companies such as Agro and Food Industry Sector: 42 companies, Consumer Products Sector: 35 companies, Industrials Sector: 45 companies, Property and Construction Sector: 64 companies, Resources Sector: 16 companies, Services Sector: 75 companies, Technology Sector: 40 companies, and excluding 54 listed companies failing to meet the criteria for audit committees which under plan administrator. Since the research involves secondary data, annual reports of the companies were obtained. The year 2004 was chosen because this study took several measures to minimize the subjectivity problem involved and public companies are required by law to disclose comparative figures for each information item; current figures for each item were compared with that of the previous year, due to the availability of the data and the current status of the data. Annual reports for the current year represented the most recent source of data available at the time of the study. Furthermore, an annual report for the current year is relevant in policy terms since they seek to determine, under a given regime of rules and setting, the effect of the corporate governance variables on voluntary disclosure. Voluntary Disclosure Checklist Theoretical and empirical literature has frequently treated voluntary disclosure as an amorphous group of information items. In contrast, Meek et al. (1995) suggested the separation of voluntary disclosures into categories according to their specific nature. The voluntary disclosure checklist of this study is adopted from both Meek et al. (1995) and Chau and Gray (2002). The checklist by Chau and Gray (2002) was based on an analysis of two important Asian markets, namely, Hong Kong and Singapore. It also provides a useful benchmark for comparison with earlier research. Meek et al. and Chau and Gray categorized the voluntary disclosure information into three types: (1) strategic, (2) non-financial, and (3) financial. The study initially combined both the checklist of Meek et al. and Chau and Gray. Whenever an item appeared in either of the study, it was included in the study’s checklist. Upon completion of this, the study ended up with a total of 115 items in its voluntary disclosure

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 17 checklist. After this stage, the study then eliminated the items that were mandated by the SET. The mandatory items were determined through interviews with the regulators and also by examining the regulatory requirements of Thailand, namely, the Accounting Act (2000), the Stock Exchange of Thailand (SET), the Stock Exchange Commission of Thailand (SEC), and the Public Companies Act (1992). This resulted in a voluntary disclosure checklist comprising 70 items. To validate that the checklist did include only voluntary disclosure items, it was subjected to evaluation by a few Certified Public Accountants in Thailand. They confirmed that the 70-item checklist can be used for the purpose of the study. Categories of Voluntary Disclosure Strategic information includes general corporate information, corporate strategy, research and development, and future prospects. Non-financial information includes employee information, social policy and value added information. Financial information includes segmental information, financial review, foreign currency information, and stock price information. Strategic and financial types of information have decision relevance to investors while non-financial information is directed towards a corporation’s social accountability and targeted at a wider spectrum of stakeholders other than owners/investors. Some items in the employee information, for example, amount spent in training, nature of training, policy on training, categories of employees trained, and number of employees trained, are directed towards the principles of good corporate governance of the SET (2001) No. 15. This guideline suggested that the board of directors should ensure that the company discloses important information correctly, timely and transparently. It is also recommended that the board provide an Investor Relations Unit to represent the company when communicating with institutional and individual investors, stock analysts in general and state agencies concerned. Other recommendations also included that the board should provide for adequate resources to help develop the knowledge and the ability of company personnel in their communication and presentation of information. The 70-item voluntary disclosure checklist comprises 16 items of strategic information, 27 items of non-financial information, and 27 items of financial information. Most of the prior studies and this present study related to corporate information disclosure have tended to treat voluntary disclosure as a whole (Chau & Gray, 2002). Scoring the Voluntary Disclosure Items and Disclosure Index The Voluntary Disclosure Index is based on the 70 disclosure items. Scoring and disclosure indexes of the voluntary disclosure items under the unweighted voluntary disclosure index were adopted from Cooke (1989). The additive model used in this study is unweighted. The implied assumption is that each item of disclosure is equally important. This study uses a dichotomous procedure in which an item scores one if it is disclosed and zero if it is not disclosed. The total score of voluntary disclosure (Vj) for a company j is additive:

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 18 ∑==701iijj dV Where, j = 1 to 317, i = 1 to 70; dij = 1 if the voluntary disclosure item di is disclosed and 0 if the voluntary disclosure item di is not disclosed for company j; Once all items have been scored an index is created to measure the relative level of disclosure by a company. The index is a ratio of the actual scores awarded to a company to the scores which that company is expected to earn. Consequently, a company is not penalized for those items that are not relevant to it. Thus, the maximum score (Mj) companies can earn varies: ∑=Μjniijj d1 where, dij = the maximum possible number of voluntary disclosure items expected to be disclosed by a company j; nj = the number of items which a company j is expected to disclose, i.e. n ≤ 70 for a company j (discussed below). Where there is no mention in the corporate annual report of a disclosure item, for example, foreign currency information, it is concluded that the item of disclosure was not relevant to that company. Consequently, a company is not penalized for non-disclosure of information that was not relevant to it. In contrast, if it is apparent that an item of disclosure is relevant, for example, by mentioning transactions about import and/or export but without disclosing foreign currency information, then clearly di = 0. The relative voluntary disclosure index (VDIj) for each company j is measured by an index which is the proportion of the total score of voluntary disclosure (Vj) awarded to a company j to the score which that company j could at most be expected to disclose as the maximum score (Mj). Thus, the voluntary disclosure index score can range from zero to one; (0 ≤ VDIj ≤ 1) to be used in the statistical analyses. Quality of Board of Directors Index The ten characteristics of the board of directors are used to measure the board of directors’ quality index (BOQI). This study assigns a score of ‘1’ if the characteristic is present and ‘0’ if the characteristic is absent. The study assumes that the higher the score (or the BOQI), the higher is the quality of BOD. The measurement for each of the characteristic is shown in Table 1.

TABLE 1 Measurement of Independent Variable Quality of Board of Directors as quality of board and board’s committees (i.e. audit committee and remuneration committee) in compliance with the SET’s Code of Best Practice for Directors of Listed Companies (1999), Best Practice Guidelines for Audit Committee (1999), and The Principles of Good Corporate Governance (2001) Measurement of Board of directors’ quality index (BOQI) and code and principle is used. Assign score: If comply score 1, Non-compliance score 0. Total scores = 10 scores. Examples of prior studies are used. 1. Quality of Board’s Leadership Structure The titles and authority of the board’s chairman and head of management team are clearly separated (BCEO) Comply with No.9 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Evans, 2004) 2. Quality of Board’s Composition More than half of the directors on the board are INDs (BI51) Comply with No.8 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Vafeas, 1999; and Willekens et al., 2004) 3. Quality of Board’s Meetings All directors to attend every board meetings (BMAL) Comply with No.11 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Evans, 2004; and Vafeas, 1999) 4. Quality of Board’s Controlling System and Internal Audit Internal audit department is in company (BIAD) Comply with No.13 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Willekens et al., 2004) 5. Quality of AC’s Leadership Structure The chairman of AC is an IND (ACCI) Comply with No.12 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Haniffa and Cooke, 2002)

TABLE 1 (Continued) Quality of Board of Directors as quality of board and board’s committees (i.e. audit committee and remuneration committee) in compliance with the SET’s Code of Best Practice for Directors of Listed Companies (1999), Best Practice Guidelines for Audit Committee (1999), and The Principles of Good Corporate Governance (2001) Measurement of Board of directors’ quality index (BOQI) and code and principle is used. Assign score: If comply score 1, Non-compliance score 0. Total scores = 10 scores. Examples of prior studies are used. 6. Quality of AC’s Composition At least three AC members are INDs (IDAC) Comply with No. 3.1 of Best Practice Guidelines for Audit Committee score 1, Non-compliance score 0 (e.g. Ho and Wong, 2001; and Willekens et al., 2004) 7. Quality of AC’s Meetings All AC members to attend every AC meetings (ACMA) Comply with No.11 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Evans, 2004; and Liu, 2004) 8. Quality of AC’s Knowledge and Expertise At least one AC member is a financial reporting expert as CPA (ACEX) Comply with No. 3.3 of Best Practice Guidelines for Audit Committee score 1, Non-compliance score 0 (e.g. Mangena and Pike, 2005) 9. Quality of RC’s Leadership Structure The chairman of RC is an IND (RCCI) Comply with No.12 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Haniffa and Cooke, 2002) 10. Quality of RC’s Composition More than half of the RC members are non-executive directors (RCPR) Comply with No.12 of the Principles of Good Corporate Governance score 1, Non-compliance score 0 (e.g. Vafeas and Theodorou, 1998)

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 21 Ownership Structure CEO controlling ownership A CEO controlling ownership is defined as the percentage of a firm’s total outstanding common shares owned by the CEO on the board of directors; adapted from McClelland and Barker III (2004). Controlling ownership is divided into high level and low level based on the median of the sampled companies. Largest shareholder controlling ownership In Thailand, as defined by the SET, the largest shareholder who controls at least 25 percent of outstanding shares is deemed to have adequate controlling rights on the firm’s management. This study will use the same definition. On one hand, he/she is not an executive director; on the other hand he/she is a family member. This measurement is adapted from Chen and Jaggi (2000). TABLE 2 List of Thai Conglomerates Group Type of business Bangkok Bank Group Banking, finance, insurance, trading, textile, property development, agribusiness, food, health care services Kasikornbank Group Banking, finance, insurance, trading, textile, property development, agribusiness, food, health care services Bank of Ayudhaya group Banking, insurance, flour milling, shipping, property development, agribusiness, construction materials, silo and warehouses CP group Agribusiness, agriculture, telecommunication, wholesale Central group Hotel, property development, trading, department store Saha Union group Textile, trading, finance, cosmetics, computer, electrical appliance, plastic, agriculture, footwear Saha Pathanapibul group Trading, textile, food products, consumer products, cosmetic products, property development Siam Cement group Banking, finance, insurance, cement, steel, property development, pulp and paper, glass, hotel Sri Krung Wattana group Agribusiness, agriculture, trading, food products, steel, chemical, shipping Sun Hua Seng Trading, agribusiness, agriculture, pulp and paper, shipping Source: Pipatseritham (1981) and Manager Information Services (1996) as cited in Wiwattanakantang, 2000. Control Variables The control variables used are similar to those used by Chen and Jaggi (2000), such as the debt-equity ratio is defined as the ratio of long-term debt over book value of common equity, firm size which is measured by total assets, liquidity ratio is defined as the ratio of current assets over current liabilities, earnings return is defined as the ratio of income before extraordinary items (IBEX) over book value of equity for the beginning of the period, profit margin is defined as IBEX over net sales, scope of business operations is defined as conglomerate or non-

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 22 conglomerate firms (see Table 2 as cited in Wiwattanakantang, 2000), audit firm size influence is defined as the Big 4 international independent audit firms namely, PriceWaterhouseCoopers, Ernst & Young, Deloitte and Touche, and KPMG. Thus, these variables are included in the regression models as control variables. Source of Information The study uses secondary data from various sources, namely, annual reports (Form 56-2), reports on the disclosure of additional information (Form 56-1) for the year 2004, Fact Book of the SET (2005), and listed company information from www.setsmart.com of SET. Data Analysis A four-step hierarchical regression is used to test the hypotheses. The first step is to test the control variables, the second step is to test the independent variables, the third step is to test the moderating variables and the fourth and final step is to test the interaction terms of BOQI and the moderating variable. The model can be stated as follows: VDIj = β0 + β1BOQIj + β2MVij + β3BOQIj_MVij + β4PPMj + β5ROEj + β6CRj + β7DEj + β8LNTAj + β9CONGj + β10BIG4j + εj ……………………(1) Where: j = Firm indicator (1 – 317); Dependent Variables VDIj = Voluntary disclosure index, 0 ≤ VDIj ≤ 1 for company j; Independent Variables BOQIj = the board of directors’ quality index, 0 ≤ BOQIj ≤ 1 for company j; Moderating Variables MVij = moderating variables (i = 1, 2, 3 and 4); MV1= HCEO, MV2=LCON, MV3=LCNE and MV4=FCON for company j; HCEOj = 1 for the direct percentage of a firm’s total outstanding common shares owned by CEO more than median with high ownership concentration, and 0 for at most median with low ownership concentration for company j; LCONj = 1 as the largest shareholder controlling ownership if more than 25 percent of their outstanding common shares were held by the largest shareholder, and 0 as the largest shareholder non-controlling ownership if at most 25 percent of their outstanding common shares were held by the largest shareholder for company j; LCNEj = 1 as the largest shareholder controlling ownership if more than 25 percent of their outstanding common shares were held by the largest shareholder who is not an executive director, and 0 as others for company j; FCONj = 1 as the largest shareholder controlling ownership if more than 25 percent of their outstanding common shares were held by the largest shareholder who is a family member, and 0 as others for company j;

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 23 Interaction Terms of Independent variables and Moderator variables (MV) BOQIj_MVij = Interaction term of BOQI and MVi for company j; Control Variables PPMj = Income before extraordinary items over net sales for company j; ROEj = IBEX over book value of equity for the beginning of the period for company j; CRj = Current assets over current liabilities for company j; DEj = Long-term debt over book value of common equity for company j; LNTAj = Natural logarithm of total assets for company j; CONGj = 1 if company is a conglomerate firm; 0 if company is a non- conglomerate firm for company j; BIG4j = 1 if audit firm size is Big 4; 0 if audit firm size is non-Big 4 for company j; Parameters β0 = Constant; β1-10 = Coefficients of variables 1-10; and εj = Error term for company j. RESULTS Level of the Board of Directors Quality Table 3 presents the frequency of board of directors’ quality in compliance with the SET’s Code of Best Practice for Directors of Listed Companies, Best Practice Guidelines for Audit Committees, and the Fifteen Principles of Good Corporate Governance of non-financial listed companies in the Stock Exchange of Thailand (SET) of 317 companies for the year 2004.

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 24 TABLE 3 Descriptive Statistics of Measurement in Step of the level of board of directors’ quality (N=317) Companies Comply Acronym Independent Variables Frequency Percentage BCEO The titles and authority of the board’s chairman and head of management team are clearly separated 186 58.7% BI51 More than half of the directors on the board are independent non-executive directors (INDs) 10 3.2% BMAL All directors on board to attend every board meetings 18 5.7% BIAD Internal audit department is in company 238 75.1% ACCI The chairman of AC is an IND 283 89.3% IDAC At least three AC members are INDs 242 76.3% ACMA All AC members to attend every AC meetings 79 24.9% ACEX At least one AC member must be a financial reporting expert as CPA 54 17.0% RCCI The chairman of RC is an IND 31 9.8% RCPR More than half of the RC members are non-executive directors 69 21.8% Overall Compliance (Sum of Frequency = 10 BOD x 317 companies = 3,170) 1,210 38.2% (1,210 / 3,170) Descriptive Statistics Table 4 provides descriptive statistics of dependent, independent, control, and moderating variables.

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 25 TABLE 4 Descriptive statistics of dependent, independent, control, and moderator variables Variable Acronym Mean Median SD Min Max Dependent Variable Voluntary disclosure index VDI 0.37 0.36 .107 0.09 0.74 Independent Variable Board of Directors’ Quality Index BOQI 0.38 0.40 .121 0.10 0.70 Control Variable Income before extraordinary items over net sales PPM 0.09 0.08 .202 -2.12 0.92 IBEX over book value of equity for the beginning of the period ROE 0.17 0.15 .472 -3.71 3.02 Current assets over current liabilities CR 2.50 1.62 3.183 0.02 36.05 Long-term debt over book value of common equity DE 0.36 0.12 1.273 -6.60 17.22 Natural logarithm of total assets LNTA 3.44 3.15 1.359 0.88 8.49 Frequency Percentage Scope of business operations CONG Company is a conglomerate firm 1 41 12.9% Company is not a conglomerate firm 0 276 87.1% Audit firm size influence BIG4 Audit firm size is Big4 1 197 62.1% Audit firm size is not Big4 0 120 37.9% Moderator Variables MV Mean Median SD Min Max Percentage of stock owned by CEO 0.15 0.06 .188 0.00 0.92 Frequency Percentage A CEO’s ownership HCEO High Concentration (More than median at 6%) 1 154 48.6% Low Concentration (At most median at 6%) 0 163 51.4% The largest shareholder’s ownership LCON Controlling ownership (At least 25%) 1 270 85.2% Non-Controlling ownership (Less than 25%) 0 47 14.8% The largest shareholder’s ownership Controlling ownership (At least 25%) LCNE Non-executive director 1 147 46.4% Others 0 170 53.6% The largest shareholder’s ownership Controlling ownership (At least 25%) FCON A family member 1 123 38.8% Others 0 194 61.2%

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 26 Correlation Matrix Table 5 provides the correlation matrix of control, independent and dependent variables. Goodness of Measures This section describes the study’s voluntary disclosure checklist and provides evidence supporting its reliability. The reliability of measurement in this study was tested using Cronbach’s alpha (Cronbach, 1951). The instruments - voluntary disclosure checklist items - used in the study were reliable with coefficients ranging from .85 to .87, which exceeded the minimum acceptance level of .70 (according to Nunnally, 1978; a Cronbach’s alpha of .70 and above testifies strong scale reliability). The correlation matrix did not have multicollinearity between major variables because the absolute value of major variables, which ranges from .00 to .74, becomes a problem when the correlation between the variables exceeds .80 or .90 (Field, 2000, as cited in Mangena & Pike, 2005). Furthermore, these hierarchical regressions have a Tolerance ranges from .82 to .94, which is more than .10; indicating that multicollinearity did not exist in the hierarchical regression analysis (Hair et al., 1998). In addition, another more formal method for detecting multicollinearity involves the calculation of the Durbin-Watson. The Durbin-Watson test is used to test autocorrelation. As a focused test, the Durbin-Watson test, ranges from 1.97 to 2.01, indicates the absence of autocorrelation (Prasertratthasin, 2005). Hierarchical Regression Results and Discussion Hierarchical regression results Table 6 provides the hierarchical regression results using control variables, independent variable, and moderating variables in model 1.1, model 1.2, model 1.3 and model 1.4 on the relationship between the level of the quality of the board of directors and the level of voluntary disclosure, adjusted for items that are not applicable to the firm. Effects of Control Variables. As shown in Table 6, when the seven firm characteristics as control variables were entered into the regression equation in the first step, the coefficient of determination (R2) was found to be .325, indicating that 32.5 percent of the level of voluntary disclosure is explained by the firm characteristics. It can be observed that control variables such as ROE, LNTA, and BIG4 (Std. Beta = .105, .486, and .112, respectively) showed a significant and positive relationship with VDI at the .05, .01, and .05 level, respectively. These results provided support for ROE, LNTA, and BIG4 and no support for PPM, CR, DE, and CONG of the study.

TABLE 5 Correlation Matrix of the major variables BOQI PPM ROE CR DE LNTA CONG BIG4 HCEO LCON LCNE FCON VDI BOQI 1.000 .142* .128* -.078 .097 .373** -.068 .134* -.224** .139** .220** -.087 .538** PPM 1.000 .368** .246** .058 .251** -.016 -.041 .023 .157** .109 .003 .210** ROE 1.000 .044 -.054 .143* -.078 .026 .086 .115* .058 .024 .200** CR 1.000 -.065 -.099 -.109 -.127* .027 .017 -.015 .028 -.063 DE 1.000 .272** .044 .057 -.064 .073 .058 -.006 .138* LNTA 1.000 .024 .231** -.254** .174** .284** -.163** .544** CONG 1.000 -.048 -.224** -.104 .151** -.230** -.012 BIG4 1.000 -.165** .095 .256** -.193** .228** HCEO 1.000 .015 -.600** .625** -.376** LCON 1.000 .388** .332** .346** LCNE 1.000 -.740** .533** FCON 1.000 -.293** VDI 1.000 Note: Multicollinearity between independent variables becomes a problem when the correlation between the variables exceeds .80 or .90 (Field, 2000 as cited in Mangena and Pike, 2005), * p < .05, ** p < .01. Variable definitions Independent Variable BOQI Board of Directors’ Quality Index Control Variables PPM Income before extraordinary items over net sales ROE Income before extraordinary items over book value of equity for the beginning of the period CR Current assets over current liabilities DE Long-term debt over book value of common equity LNTA Natural logarithm of total assets CONG Scope of business operations BIG4 Audit firm size influence Moderator Variables HCEO A high concentration of a CEO controlling ownership LCON The largest shareholder controlling ownership LCNE The presence of the non-executive director, largest shareholder-controlling ownership FCON The presence of the family member, largest shareholder-controlling ownership Dependent Variable VDI Voluntary disclosure index

TABLE 6 Hierarchical regression results (N=317) Standardized Beta Step 1 Step 2 Step 3 Step 4 CV (1) Model 1.1 Model 1.2 Model 1.3 Model 1.4 Model 1.1 Model 1.2 Model 1.3 Model 1.4 Variables (1)-(7) HCEO LCON LCNE FCON HCEO LCON LCNE FCON Control Variables PPM .059 .039 .055 .018 .022 .045 .050 .022 .026 .042 ROE .105* .084 .107* .075 .083* .090* .109* .076 .083* .088* CR -.021 .003 -.013 .001 -.015 -.006 -.013 .000 -.020 -.011 DE .001 .000 .005 -.008 .008 .010 -.001 -.010 .000 .003 LNTA .486** .360** .314** .344** .293** .333** .295** .335** .277** .322** CONG -.012 .017 -.037 .035 -.048 -.033 -.023 .030 -.043 -.022 BIG4 .112* .095* .069 .083 .016 .059 .076 .088* .031 .067 Independent Variable BOQI .375** .334** .350** .325** .366** .448** .118 .218** .449** Moderating Variable MV -.227** .205** .373** -.204** .172 -.078 -.012 .151 Interaction term BOQI x MV -.407** .412* .438** -.371** Statistics R Square .325 .444 .487 .482 .560 .481 .501 .493 .573 .492 Adjusted R Square .310 .429 .472 .467 .547 .466 .485 .477 .559 .476 R Square Change .325 .119 .043 .039 .116 .037 .014 .011 .013 .012 F Change 21.243** 65.823** 25.611** 22.941** 81.158** 21.890** 8.797** 6.458* 9.430** 6.966** Durbin-Watson 1.967 2.011 1.998 1.978 Tolerance Min / Max .843 / .892 .843 / .938 .824 / .851 .843 / .923 Note: Tolerance more than .10, indicating that multicollinearity did not exist in the hierarchical regression analysis (Hair et al., 1998). In addition, another more formal method for detecting multicollinearity involves the calculation of Durbin-Watson. The Durbin-Watson test is used to test autocorrelation. As a focused test, the Durbin-Watson test does not address autocorrelation of 1.65 to 2.35 (Prasertratthasin, 2005), * p < .05, ** p < .01.

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 29 Effect of Board of Directors’ quality index (BOQI). In step 2, by adding the one independent variable, R2 increased to 44.4 percent. This R2 change (.119) is significant. This implies that the additional 11.9 percent of the variation in VDI is explained by BOQI. BOQI (Std. Beta = .375) was found to have a significant and positive relationship with VDI at the .01 level of significance. These results provided support for Hypothesis 1 of the study. Moderating Effects of HCEO, LCON, LCNE, and FCON. In the third step of Models 1.1, 1.2, 1.3 and 1.4, HCEO, LCON, LCNE and FCON were entered into the equation in order to gauge theirs impact as independent predictors. R2 increased from 44.4 percent to 48.7, 48.2, 56.0, and 48.1 percent, indicating a change of 4.3, 3.9, 11.6, and 3.7 percent, which is significant (p < .01). In the fourth and final step of Models 1.1, 1.2, 1.3 and 1.4, when the interaction term was entered into the Models it can be seen that it yielded a significant F Change of 8.797, 6.458, 9.430 and 6.966 respectively, and the additional variance explained by the interaction terms were 1.4, 1.1, 1.3, and 1.2 percent respectively. This indicates that the four types of ownership structure namely, a high concentration of CEO’s ownership; the largest shareholder controlling ownership; the largest shareholder controlling ownership who is not an executive director; and the largest shareholder controlling ownership who is a family member moderates the relationship of the board of directors’ quality index and the voluntary disclosure index. All types of ownerships are quasi moderators4. These results provided support for Hypotheses 2; 3; 3a and 3b of the study. DISCUSSION Level of the Quality of the Board of Directors The study found that the level of the quality of the board of directors is 38 percent. Using the SET’s study (2003) on good corporate governance characteristics of public listed companies in Thailand’s rating as a guideline; ‘very high’ is more than 80 percent, ‘high’ is between 70 to 80 percent, ‘medium’ is 60 to 70 percent, ‘low’ is between 50 to 60 percent and ‘very low’ is less than 50 percent, the level of BOD’s quality found in this study can be said to be at a ‘very low level’. 4 A quasi moderator not only interacts with the predictor variable but is a predictor variable in itself (Sharma et al., 1981).

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 30 Level of Voluntary Disclosure The study found that the level of voluntary disclosure was 37 percent. Wallace (1988) rated the levels of voluntary disclosure as ‘high’ if the score was more than 50 percent, ‘medium’ if the score was between 30 percent and 50 percent and ‘poor’ if the score was less than 30 percent. Using Wallace’s study as a guideline, the level of voluntary disclosure in Thailand can be said to be at a ‘medium’ level. Board of Directors’ Quality Index and Voluntary Disclosure Index The study found that the higher the level of board of directors’ quality, the higher is the level of voluntary disclosure. The results are consistent with Willekens et al. (2004) who found that internal governance mechanisms such as board of directors can aid in enhancing corporate voluntary disclosure and that voluntary disclosure is used as a means to reduce information asymmetry and agency problems. Moderating Effect of High Concentration of CEO’s Ownership (HCEO) This study found that HCEO will negatively moderate the relationship between BOQI and VDI. The result is consistent with McClelland and Barker III (2004) who found that the level of CEO ownership control negatively moderates the relationship between CEO’s age and firm performance. The traditional view of the agency theory proposes that the CEO and shareholder interests converge when the CEO becomes shareholders (Jensen & Meckling, 1976). Furthermore, it is expected that increased ownership in the hands of managers will lead to greater equity value for shareholders (Hubbard & Palia, 1995). This theory has been shown to be under-specified in explaining equity ownership effects. Indeed, higher levels of equity ownership also provide the CEO with the power necessary to entrench themselves and increase their discretion. Thus, the CEO with very high levels of ownership has a greater capacity to be free from the discipline of the firm’s board, shareholders, or the market for corporate control namely, takeovers. Indeed, firms run by CEOs with high ownership positions perform relatively poorly in the stock market (e.g. DeAngelo & DeAngelo, 1985; Morck et al, 1988; and Slovin & Sushka, 1993 as cited in McClelland & Barker III, 2004). Thus, CEO equity holdings can have differing effects on the alignment of CEO and shareholder interests; It becomes more difficult for shareholders to control the managers and thus, this will have a negative impact on the relationship of BOQI and VDI. Moderating Effect of Largest Shareholder Controlling Ownership (LCON) The study found that LCON will moderate the relationship between BOQI and VDI. However, step 4 of Table 6 of this study has shown that BOQI is not significant but the interaction term between BOQI and LCON is significant at .05 levels. This finding has shown that LCON can have a positive and negative on BOQI. This finding is supported by Shleifer and Vishny (1986);

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 31 ownership concentration can be an efficient monitoring mechanism because it is an incentive for major shareholders to bear monitoring costs since they are likely to obtain substantial benefits from active monitoring. This means that major shareholders who are not part of management may have less influence on the firm’s policies than insiders (Jensen, 1986). This also means that the problem of minority expropriation may arise when ownership is concentrated in a specific group, particularly individuals/family (Shleifer & Vishny, 1997). In this study, controlling ownership is said to exist if more than 25 percent of their outstanding common shares were held by the largest shareholder. Thus, the largest shareholder controlling ownership has an effect on the relationship of BOQI and VDI. Moderating Effect of LCON who is not an executive director (LCNE) The study found that LCNE will positively moderate the relationship between BOQI and VDI. This finding is supported by Shleifer and Vishny (1986) and Dhnadirek and Tang (2003) who found that the relationship with financial reporting will not necessarily be the same between major shareholder ownership and managerial ownership (Dhnadirek & Tang, 2003). This study found that managerial ownership will negatively moderate the relationship between BOQI and VDI. Thus, the largest shareholder controlling ownership who is not an executive director would help managers to better manage the company and thus, will have a positive impact on the relationship of BOQI and VDI. Moderating Effect of LCON who is a family member (FCON) The study found that FCON will negatively moderate the relationship between BOQI and VDI. The correlation matrix of Table 5 in this study has also shown that there is no correlation between BOQI and FCON thus; disputing the findings found in previous studies that state that ownership will influence the board of directors’ quality which, in turn, will influence voluntary disclosure. This study found that family members as executive directors and outside non-executive directors have a direct effect on the quality of the board of directors. This finding is supported by Limpaphayom (2000) who stated that family members were often insiders, meaning that they were the chairmen, managers and members of the board of directors, as well as the ones who nominated outside non-executive directors. The role of outside non-executive directors per se is minimal as firm ownership was dominated by family members: Outside non-executive directors (those who did not hold management positions in the firm) would find it difficult to garner sufficient votes to influence or oust incumbent management hence, restricting the role of the market in corporate control. Furthermore, the study found that FCON will negatively moderate the relationship between BOQI and VDI. This finding is supported by Shleifer and Vishny (1997) and Chen and Jaggi (2000) who stated that the ratio of independent non-executive directors on corporate boards is positively associated with the comprehensiveness of financial disclosures and this association appears to be weaker for family controlled firms compared to non-family controlled

Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 32 firms. Hill (1999) argued that no one single mechanism is a governance panacea and suggested that it is desirable to have a system of overlapping checks and balances for the behaviors of controlling shareholders and at least one family member is related to an executive director. Thus, if the largest shareholder controlling ownership is a family member, it becomes more difficult for shareholders to control who their family member is and thus, it can have a negative effect on the relationship of BOQI and VDI. Control Variables Similar to the results reported by Chen and Jaggi (2000), the control variables of Profit margin (PPM), Liquidity ratio (CR), and Debt-equity ratio (DE) are not statistically significant, and the control variables of natural logarithm of total assets (LNTA), auditor size influence (BIG4), and earnings return (ROE) are statistically significant. While the control variable of scope of business operations (CONG) was significant in Chen and Jaggi (2000), it is not significant in this study. This study examines the effect of the quality of board of directors and the ownership structure on the level of voluntary disclosure using the hierarchical regression analyses with firm size for structure-related characteristics which include agency theory, information and political costs, proprietary costs, and capital need (e.g. Cooke, 1989; Haniffa & Cooke, 2002; and Hossain et al., 1995), auditor size influence for market-related characteristics which include reputation costs and signaling agency costs (e.g. Singhvi & Desai, 1971), and earnings return for performance-related characteristics which include support continuance and compensation (e.g. Singhvi & Desai, 1971) as control variables. CONCLUSIONS This study extends the previous literature by examining voluntary disclosure in a developing country as Emerging Capital Market, namely, Thailand. The study investigates whether board of directors, ownership structure, and firm characteristics influence the voluntary disclosure index in the annual reports of 317 non-financial companies listed on the SET in 2004. The proposed framework, that ownership structure moderates the relationship between board of directors and voluntary disclosure substantially, was validate was explained by firm characteristics 32.5 percent (i.e. structure-related characteristics as firm size 29.7 percent, performance-related characteristics as earnings return 1.6 percent, and market-related characteristics as auditor type 1.2 percent), the board of directors’ quality 11.9 percent, ownership structure as moderator variables 11.6 percent, and interaction terms 1.3 percent. The study contributes to the body of research in agency theory. It suggests that the voluntary disclosure checklist of 70 items can be used to measure the voluntary disclosure practices of the public listed companies in Thailand. It is consistent with a recent trend in the

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 33 literature which Gul and Leung (2004) suggested that the role of corporate governance on some aspect of the agency problem between managers and shareholders is best examined in the context of a package of corporate governance mechanism namely, the role of two or more corporate governance mechanisms as board of directors and ownership structure. When, ownership is highly concentrated, the nature of the agency problem shifts away from manager-shareholder conflicts to conflicts between the controlling (major) shareholders and non-controlling (minor) shareholders (Berle & Means, 1932; Fan & Wong, 2002, as cited in Hope, 2003). These results have a significant contribution to the agency theory as there is evidence to show that the relationship between board of directors’ quality and voluntary disclosure will not necessarily be the same between major shareholder owners (positively and negatively moderate) and managerial owners (negatively moderate). The presence of the non-executive director, largest shareholder-controlling ownership positively moderate, but the presence of the family member, largest shareholder-controlling ownership negatively moderates the relationship between the level of board of directors’ quality and the level of voluntary disclosure. This means that ownership that is highly concentrated, family members and executive directors are of the same person, and the board of directors is mostly controlled by the largest shareholder will shift from manager-shareholder conflicts and the controlling-non-controlling shareholders conflicts to the type of controlling ownership conflict between the presence of the non-executive director and the family member, largest shareholder-controlling ownership. In addition, a high concentration of CEO controlling ownership negatively moderates the relationship between the level of board of directors’ quality and the level of voluntary disclosure. This means that in a highly concentrated ownership, the nature of the agency problem shifts from manager-shareholder conflict to a concentration of controlling ownership conflict between a high and a low concentration of CEO controlling ownership. Furthermore, this study supports Hill’s argument (1999) that no one single mechanism is a governance panacea and suggests that it is desirable to have a system of overlapping checks and balances for the behaviors of controlling shareholders for firms with a high concentration of CEO controlling ownership and family controlled firms. Finally, the control variables comprising size of company, auditor type, and earnings return were found to have a significant influence on the level of voluntary disclosure. REFERENCES Abbott, L.J. & Parker, S. (2000). Audit selection and audit committee characteristics. Auditing: A Journal of Practice and Theory, 19, (2), 47-66. Balachandran, J. & Bliss, M. (2004). Board independence and voluntary disclosure: Evidence from Malaysia. Working Paper, Department of Accountancy, City University of Hong Kong. Ball, R., Robin, A. & Wu, J.S. (2003). Incentives versus standards: Properties of accounting income In four East Asian countries, and implications for acceptance of IAS. Journal of Accounting & Economics, 36, (1-3), 235-270.

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Jakkravudhi Chobpichien, Hasnah Haron and Daing Nasir Ibrahim 38 V13 Qualitative forecast of sales V14 Qualitative forecast of profits V15 Qualitative forecast of cash flows V16 Order book or backlog information B. Non-financial Information (5) Employee information V17 Geographical distribution of employees V18 Line-of-business distribution of employees V19 Categories of employees by sex V20 Categories of employees by function V21 Identification of senior management and their functions V22 Number of employees for 2 or more years V23 Reasons for changes in employee numbers or categories over time V24 Amount spent in training V25 Nature of training V26 Policy on training V27 Categories of employees trained V28 Number of employees trained V29 Safety policy V30 Data on accidents V31 Cost of safety measures V32 Policy on communication V33 Redundancy information V34 Equal opportunity policy statement V35 Recruitment problems and related policy (6) Social policy and value-added information V36 Safety of products V37 Environmental protection programs – qualitative V38 Environmental protection programs – quantitative V39 Community programs V40 Value-added statement V41 Value-added data V42 Value-added ratios V43 Qualitative value-added information C. Financial Information (7) Segmental information V44 Geographical production - quantitative V45 Line-of-business production – quantitative V46 Competitor analysis – qualitative V47 Competitor analysis – quantitative V48 Market share analysis – qualitative V49 Market share analysis – quantitative (8) Financial review V50 Profitability ratios V51 Qualitative comments on profitability V52 Cash flow statement – direct V53 Cash flow ratios V54 Liquidity ratios V55 Gearing ratios V56 Disclosure of brand valuation V57 Financial history or summary – 6 or more years V58 Off balance sheet financial information

Quality of Board of Directors, Ownership Structure and Level of Voluntary Disclosure of Listed Companies in Thailand 39 V59 Advertising information – qualitative V60 Effects of inflation on future operations – qualitative V61 Effects of inflation on results – qualitative V62 Effects of inflation on assets – qualitative V63 Effects of interest rates on results V64 Effects of interest rates on future operations (9) Foreign currency information V65 Effects of foreign currency fluctuations on future operations – qualitative V66 Effects of foreign currency fluctuations on current results – qualitative V67 Foreign currency exposure management description (10) Stock price information V68 Share price trend V69 Market capitalization trend V70 Foreign stock market listing information

Euro Asia Journal of Management Issue 33, Vol. 17, No.1, June 2007, pp. 41-60 THE MOTIVATION OF NGO LEADERS IN MACAU CHOI MIO KUAN and SIEW-HUAT KONG1 ABSTRACT The purpose of this study is to examine the factors that motivate Non-governmental Organization (NGO) leaders in civic activities participation using the volunteer functions inventory (VFI) model, which operationalises the functional approach to motivation on volunteerism. The VFI model suggests six motivational factors, namely career, enhancement, protective, social, understanding and values. According to the findings, the first three motivation factors ranked by the respondents were understanding, values and enhancement, and the least important factor was protective. When further test was carried out, business or career related and non business or career related NGO participants showed differences in the protective and values factors, the comparison of respondents with age 43 or below and with age 44 or above also showed similar differences; while for the subgroup of male versus female participants, results showed that protective was the only motive factor that reveal gender differences in NGO participation. In addition, it also showed that the satisfaction obtained from NGO participation can be predicted by the understanding factor, participants also tend to increase the number of NGOs they join when they are motivated by the enhancement and social factors but they will be discouraged to do so if motivated by the protective factor. 1 Corresponding author, Faculty of Business Administration, University of Macau, Macau, P.R. China. Email: shkong@umac.mo

Choi Mio Kuan and Siew-Huat Kong 42 INTRODUCTION Although Macau is a small developing city, in November 2005 there were 2,745 registered associations2. For the six years from 2000 to 2005, more than 1,000 new associations were registered. According to the information listed in the website of the Government Printing Bureau (http://www.imprensa.macau.gov.mo/cn/priv/), associations of Macau are divided into 15 major categories. Among the different categories, associations related to Sports, Art and Culture, and Social Services occupy the largest percentage. Associations seem to represent a vital role in major aspects of Macau’s development, which include political, economic, social, cultural, international affairs, etc. The relationship between associations and the Macau government is closely related, and the latter also believes that to obtain the voice and consultation from associations assists in policy decision-making and implementation. With the action of the Chief Executive of Macau, Mr Edmund Ho, visiting and attending the activities of different organizations, as well as the frequent granting of interviews to various organizations, serves as a kind of remarkable signal that the government is willing to listen to the voice of associations and allow lenient laws in the establishment of such organizations. Because of the special role played by associations, it appears that a certain number of those individuals having outstanding performance in different areas of society have been attracted to join and participate in the activities of these non-governmental organizations (NGOs), and NGOs themselves are eager to recruit these personnel. The majority of NGOs consists of a board of directors or committees of some form that are responsible for the management of the organization. For example, regular meetings are held to decide on the organization of activities and projects implementation. Participation in these committees is a way to train an individual’s organization and management ability. Therefore, this paper attempts to find out the reasons for participating in these organizations. The research of this study is focused on the members of associations that are at present or in the past have taken a post on a committee or board of directors of associations. The purpose of the study is to find out 1) the motivations behind people’s participation in non-governmental organization activities and 2) the motivational factors that may lead to their satisfaction in NGO participation and factors that may affect the number of NGOs they will join. 2 Figure obtained from an email reply of The Identification Bureau of Macau in November 2005. By the end of December 2006, the number of registered associations reached more than 3,400.

The Motivation of NGO Leaders in Macau 43 CHARACTERISTICS OF NGO A normal chair can not stand on two legs alone. It needs at least three legs for a chair to stand properly. Rifkin (1996) thus argues that a society needs the third sector for it to function properly, other than the conventional public and private or market sectors. The third sector, which is emerging in many societies as a natural path of development, is called the civil sector. If the public has been allocated the responsibility to produce public goods such as maintenance of rule of laws, and the private sectors commercial goods such as hotel rooms and clothing, the third sector has been given the task to produce social goods which include family unity, opportunity for the disadvantaged group, etc. NGOs are formal (professionalized) independent societal organizations whose primary aim is to promote common goals at the national or the international level. NGOs are societal actors because they originate from the private sphere. Their members are individuals, or local, regional, national branches of an association (which, again, are composed of individuals), and usually do not (or only to a limited extent) include official members, such as governments, governmental representatives, or governmental institutions. NGOs promote common goals because they work for the promotion of the public good, from which their members profit and/or the public gains. NGOs can be professionalized because they may have paid staff with specifically trained skills, but they are not profit-oriented. NGOs are independent because they are primarily sponsored by membership fees and private donations. They may receive financial funding from official institutions, but only to a limited extent, so that they are not under the control of governmental institutions. NGOs are formal organizations because NGOs have, at the least, a minimal organizational structure which allows them to provide for continuous work. This includes a headquarters, permanent staff, and constitution (and also a distinct recognized legal status in at least one state) (Martens, 2002). Salamon et al. (1999) provide a widely accepted definition in Western countries to summarize the common characteristics of NGOs (Edele, 2005): 1) Organization: they have an institutional presence and structure. 2) Independence: they are institutionally separate from the state or government. 3) Non-engagement in making profits: they are not profit seeking in purpose. 4) Self-governance: they are in control of their own affairs, that is, their internal management is free from outside control. 5) Voluntary character: membership is not legally required and there is a remarkable degree of voluntary participation in both actual activities and administrative matters.

Choi Mio Kuan and Siew-Huat Kong 44 LITERATURE REVIEW Functions Served by Volunteerism As proposed by Clary et al. (1998), the classic theories of attitudes offered by Katz (1960) and Smith et al. (1956) can serve as a heuristic point of departure for considering the motivational foundations of volunteerism. Although the labels vary, several functions are common to both Katz's and Smith et al.'s taxonomies (in the following, Katz's labels are used and Smith et al.'s labels are in parentheses). Some attitudes are thought to serve a knowledge (object appraisal) function, bringing a sense of understanding to the world; other attitudes serve a value expressive (quality of expressiveness) function, helping people express deeply held values, dispositions, and convictions; and still other attitudes serve an ego defensive (externalization) function, buffering people against undesirable or threatening truths about the self. In addition to sharing these functions, Katz (1960) proposed a utilitarian function by which attitudes reflect experiences with rewarding and punishing events, and Smith et al. (1956) proposed a social adjustive function served when attitudes help people fit in with important reference groups. First of all, the functional approach is a motivational perspective that directs inquiry into the personal and social processes that initiate, direct, and sustain action (Katz, 1960). Second, a core proposition of functionalist inquiry is that people can and do perform the same actions in the service of different psychological functions (for example, different people engage in the same volunteer activity but do so to fulfil different motives). Third, the functional approach suggests that important psychological events, such as embarking on a course of volunteer activities and then maintaining those activities over extended periods of time, depend on matching the motivational concerns of individuals with situations that can satisfy those concerns. Finally, research stimulated by motivationally oriented analyses of a wide variety of cognitive, affective, behavioural, and interpersonal processes supports key functionalist themes (Snyder & Cantor, 1998). With this broad directive provided by functionalist theorizing, Clary & Snyder (1991) sought to determine the precise motivations that can be fulfilled through participation in volunteer service. On the basis of their analyses of the functions served by volunteering, and findings from diverse empirical investigations of volunteers, six personal and social functions served by volunteering were identified and operationalized (Clary et el., 1998). These six functions (Table 1) are consistent with the results of previous studies of people’s reasons for volunteering. Thus, the framework of the functional approach systematizes and organizes a literature that was previously largely theoretical in orientation (Clary & Snyder, 1991).

The Motivation of NGO Leaders in Macau 45 TABLE 1 Functions Served by Volunteering (Clary et al., 1998) Function Conceptual Definition Values The individual volunteers in order to express or act on important values such as humanitarianism. Understanding The volunteer is seeking to learn more about the world or exercise skills that are often unused. Enhancement One can grow and develop psychologically through volunteer activities. Career The volunteer has the goal of gaining career-related experience through volunteering. Social Volunteering allows an individual to strengthen his or her social relationships. Protective The individual uses volunteering to reduce negative feelings, such as guilt, or to address personal problems. The Volunteer Functions Inventory An instrument designed to measure the functions served by volunteerism is the Volunteer Functions Inventory (VFI). During the course of its development, Clary et al. (1998) sampled from diverse populations of volunteers, as well as from the population of non volunteers, using diverse methodological tools to demonstrate the reliability and validity of the VFI and using both field and laboratory methods of investigation. More specifically, their first set of three studies is concerned with the construction of the VFI, investigations into its factor structure, and assessment of its reliability. The second set of three studies is devoted to validation, using the VFI to test functionally derived hypotheses in the context of each stage of the volunteer process – recruitment of volunteers, satisfaction with the experience of volunteering, and commitment to the role of volunteer. To develop such an inventory, Clary et al. (1998) generated a set of items to reflect the psychological and social functions of volunteerism identified by the conceptual analysis. In accord with an investigative strategy for personality and social behaviour outlined by Snyder and Ickes (1985), a population was sought for whom motivations for volunteering would be salient, accessible, and meaningful. Thus, the inventory was administered to currently active volunteers engaged in diverse forms of volunteer service, individuals who, by virtue of having involved themselves in volunteer activity, could be presumed to possess motivations relevant to volunteerism. These volunteer motives include: (1) developing and enhancing one’s career (career); (2) enhancing and enriching personal development (enhancement); (3) conforming to the norms of, or establishing norms for, significant others (social); (4) escaping from negative feelings (protective); (5) learning new skills and practicing underutilized abilities (understanding); (6) expressing values related to altruistic beliefs (value). The VFI contains five reasons for each of these motives. Respondents are asked to report whether they agree each reason for volunteering is for them personally. Responses are made on a Likert rating scale with end points of one and seven.

Choi Mio Kuan and Siew-Huat Kong 46 METHODOLOGY Respondents As the purpose of the study is to focus on business or career related aspects of NGO participation, three types of groups will be chosen to participate in this research, namely Industry, Commerce and Service, Labour, and Speciality. According to the information provided by the Government Printing Bureau, the number of associations listed on the website for the Industry, Commerce and Service, Labour, and Speciality groups amounted to 431, based on information provided during December 2005 (Government Printing Bureau, 2005). However, some associations listed on the website are missing addresses; therefore, 326 associations with addresses will be participating in the survey. The researcher also selectively chose a few non business or career related associations that have some social services background to answer the questionnaire, which serve as a comparison with business or career related associations. It is expected that the president or members from the board of directors of the association, who are believed to have certain knowledge of their associations and experience in NGO activities, will participate in the research. Since Hong Kong tycoon Stanley Ho's decades-long monopoly on the gaming industry ended in 2002, foreign casino companies have invested heavily in the territory, which include new mega-casinos and major hotel developments. The policy of mainland China to ease citizens’ travel to Hong Kong and Macau attracted numerous visitors from China, which benefited Macau as a gambling and tourist centre. There seems to be quite frequent cooperation between the government and associations of Macau in different economic and social areas. For example, business trips of government officials and leaders of business associations abroad occur from time to time with the aim to promote business opportunities in Macau. Various leaders of business and professional associations representing seats in the Legislative Council also imply that they possess some degree of influential power in politics. Associations of Macau may receive subventions or some subsidies from the government, but they are financially autonomous and this enables them to speak with authority, independently of the government. It is important to stress that the financial support from the government is regarded as a kind of privilege and not as an indication of control. Although labour-community groups are comparatively fragmented, they are representing another force that somehow influences the policies of the government, especially in issues involving public interest. Fortunately, it has been the policy of the government to balance the benefits of all parties concerned. Since these significant characters are being played by the business or career related associations in the territory, they should be suitable to represent a starting group in examining the motivation on individual NGO participation in the study.

The Motivation of NGO Leaders in Macau 47 Method To gather the necessary data for this study, a questionnaire based on the Volunteer Functions Inventory proposed by Clary et al. (1998) was applied as guidance in developing the questionnaire. The questionnaire was divided into three sections. The first section consists of 30 reasons for NGO participation, based on the VFI questionnaires. The wording was slightly changed to cope with the purpose of this study. Five reasons for each motive were randomly demonstrated and the functions were not listed, therefore respondents were not directed to which reason will represent a particular motive, respondents rated each reason on a seven-point Likert scale ranging from Strongly Disagree (1) to Strongly Agree (7). The scores were formed by averaging the responses to the items that tap each motive. The second section requires respondents to state the degree of satisfaction in participating in NGOs. There is a total of six questions, and respondents rated each benefit on a seven-point Likert scale ranging from Strongly Disagree (1) to Strongly Agree (7). Responses to these items were averaged, with higher scores indicating greater satisfaction. The third section requires respondents to provide their demographic characteristics; there is a total of 10 items, including the frequency of NGO participation. Respondents are also requested to state whether they participate in other NGOs apart from the present one. The study will test whether an association exists between the degrees of motivation with the numbers of NGOs attended. RESULTS Sample profile The descriptive statistics of the respondents were conducted using the frequency tests and the demographics were illustrated (Table 2). From the survey, 68.7% were male and 31.3% female; the age distribution was quite evenly scattered among the different age groups, except for the age group of 21 or below. This was expected, because the subjects surveyed were NGO participants that have joined business or career related associations, implying a majority were already at work. Even for the social related respondents, being a member of the board of directors and possessing certain experience in NGO participation, their ages were believed to be over 20. Among the respondents, those 22–32 years of age and 44–54 years of age both occupied 29.3% of the sample, followed by 20.2% for ages 55 or above and 18.2% for ages 33–43. The survey illustrated that combining the age groups of 44–54 years of age and 55 or above contributed 49.5% of the total sample; a large proportion of respondents who participate in NGOs that were business or career related were basically mature individuals. It was interesting to reveal that for the sample group that was non business or career related, the majority fell in the age groups of 22–32 and 33–43. In addition, a majority of 68.7% had received a tertiary level of education and 29.3% had secondary education level. For the

Choi Mio Kuan and Siew-Huat Kong 48 occupation types, the subjects fell in three major categories: 32.3% of them were in management positions, 28.3% were professionals, and 19.2% were those who worked in an office and were regarded as white-collar workers. Regarding their income level, the survey showed that 36.4% received more than MOP20,001 monthly, followed by those who earned between MOP5,001–10,000, constituting 34.3%, and those earning between MOP10,001–15,000, with 14.1%. Furthermore, the respondents surveyed were active participants of NGO activities because 46.5% of them attended weekly, 27.3% attended monthly and 14.1% participated bi-weekly. On the other hand, a majority of respondents reported that they participated in more than one NGO; these subjects accounted for 76.8% of the sample. Evaluation of Hypotheses In order to examine the motivational differences for participating in NGOs, three subgroups from the sample (N=99) were analyzed using the T-tests, the business or career related against non business or career related respondents, male against female respondents and respondents with age 43 or below against age 44 or above. The relationship between the satisfaction on NGO participation and the numbers of NGO participation with the six motivational factors was then examined using multiple regressions. Hypotheses H1a–H1f will try to find out the motivational differences for participating in NGOs between business or career related and non business or career related respondents. As illustrated in Table 3, both business or career related respondents and non business or career related respondents see understanding, values and enhancement to be the salient motives, while protective is the least important. Hypotheses H1a–H1f assumed that there is no difference between the mean scores for each functional motive under business or career related with non business or career related respondents. Results in Table 3 show that for career, enhancement, social and understanding motives, p>0.05, which means that the difference between means for the two groups is not significant; H1a, H1b, H1d and H1e are accepted. On the other hand, the p-value of protective and values are less than 0.001 and 0.05, respectively, which implies that the difference between means for the two groups is significant; H1c and H1f are rejected. Thus, the protective and values motives of the VFI distinguished those business or career related NGO participants from those non business or career related participants.

The Motivation of NGO Leaders in Macau 49 TABLE 2 Demographics of the Sample (N=99) Descriptives Frequency Percentage Male 68 68.70% Gender Female 31 31.30% 21 or below 3 3.00% 22–32 29 29.30% 33–43 18 18.20% 44–54 29 29.30% Age 55 or above 20 20.20% Primary or below 2 2.00% Secondary 29 29.30% Education Tertiary or above 68 68.70% Management positions 32 32.30% Professionals 28 28.30% Technicians 1 1.00% Service/sales workers 7 7.10% Blue collar workers 3 3.00% White collar workers 19 19.20% Occupation Others 9 9.10% MOP5,000 or below 6 6.10% MOP5,001–10,000 34 34.30% MOP10,001–15,000 14 14.10% MOP15,001–20,000 9 9.10% Income MOP 20,001 or above 36 36.40% Weekly 46 46.50% Bi-weekly 14 14.10% Monthly 27 27.30% Bi-monthly 6 6.10% Quarterly 1 1.00% Semi-annually 3 3.00% Frequency of attending NGO activities Annually 2 2.00% Zero 23 23.20% One 36 36.40% Two to three 18 18.20% Extra NGO Participation More than three 22 22.20%

Choi Mio Kuan and Siew-Huat Kong 50 TABLE 3 Mean and T-Test Results of Business or Career Related vs Non Business or Career Related on their Motivations to Participate in NGOs Factors Business or career related Non business or career related T-Statistic P-Value (N = 61) (N = 38) 1a: Career 4.587 4.958 -1.887 0.062 1b: Enhancement 4.836 5.016 -1.075 0.285 1c: Protective 2.944 3.984 -5.701 0.000 ** 1d: Social 4.613 4.726 -0.512 0.610 1e: Understanding 5.702 5.542 1.143 0.256 1f: Values 5.675 5.342 2.722 0.008 * ** denotes significance at the 0.001 level. * denotes significance at the 0.05 level. Hypotheses H2a–H2f attempt to find out the motivational differences for participating in NGOs between male and female respondents. According to the mean scores for each motive factor, male and female respondents rated understanding, values, and enhancement as the most important functions, and protective as the least important function. Hypotheses H2a–H2f assumed that there is no difference between the mean scores for each functional motive under male and female respondents. Results in Table 4 show that five factors which are career, enhancement, social, understanding and values motives, p>0.05, which means that the difference between means for the two groups is not significant; H2a, H2b, H2d, H2e and H2f are accepted. On the contrary, the p-value of protective motive is less than 0.05, which indicates that the difference between means for the two groups is significant, thus H2c is rejected. Therefore, the protective motive of the VFI distinguished male from female NGO participants. From the results, five of the six motivational functions for participating in NGOs between male and female respondents indicate no significant gender differences in motivations, except for the protective function. The results are inconsistent with the findings of a National survey (Clary et al., 1998) stating that women assigned more importance to five of the six motivational functions of the VFI except the career function. In another finding, Papadakis et al. (2004) reported the values, understanding and enhancement motives were assigned significantly more important for females in comparison to male respondents. The reasons for the difference in findings may be due to the fact that all subjects in this study are present NGO participants, while the study performed by Clary et al. (1998) and Papadakis et al. (2004) included both volunteers and non-volunteers. According to their findings, differences do exist between volunteers and non-volunteers towards functional motivations.

The Motivation of NGO Leaders in Macau 51 TABLE 4 Mean and T-Test Results of Male vs Female on their Motivations to Participate in NGOs Factors Male Female T-Statistic P-Value (N = 68) (N = 31) 2a: Career 4.647 4.910 -1.156 0.251 2b: Enhancement 4.832 5.065 -1.329 0.187 2c: Protective 3.135 3.800 -3.159 0.002 * 2d: Social 4.679 4.607 0.314 0.754 2e: Understanding 5.615 5.697 -0.558 0.578 2f: Values 5.503 5.645 -1.014 0.313 * denotes significance at the 0.05 level. Hypotheses H3a–H3f attempt to find out the motivational differences for participating in NGOs between respondents with age 43 or below and those with age 44 or above. As shown in Table 5, the mean scores for each motive factor, respondents with age 43 or below and those with age 44 or above both regard understanding, values and enhancement as the salient functions, and protective as the least salient function. Hypotheses H3a–H3f assumed that there is no difference between the mean scores for each functional motive under respondents with age 43 or below against respondents with age 44 or above. Results in Table 5 show that four factors which are career, enhancement, social and understanding motives, p>0.05, which means that the difference between means for the two groups is not significant; H3a, H3b, H3d and H3e are accepted. However, the p-value of protective and values motives are less than 0.05, which indicates that the difference between means for the two groups is significant; H3c and H3f are rejected. Thus, the protective and values motives of the VFI distinguished NGO participants with age 43 or below from those with age 44 or above. TABLE 5 Mean and T-Test Results of Respondents' age with 43 or below vs 44 or above on their Motivations to Participate in NGOs Factors 43 or below 44 or above T-Statistic P-Value (N = 50) (N = 49) 3a: Career 4.900 4.555 1.648 0.103 3b: Enhancement 4.940 4.869 0.432 0.667 3c: Protective 3.644 3.037 3.106 0.002 * 3d: Social 4.656 4.657 -0.005 0.996 3e: Understanding 5.548 5.735 -1.379 0.171 3f: Values 5.400 5.698 -2.341 0.021 * * denotes significance at the 0.05 level.

Choi Mio Kuan and Siew-Huat Kong 52 Multiple regression was conducted to find out the associations between the six motives of the volunteer functions inventory. As shown in Table 6, the regression model for satisfaction obtained from NGO participation was statistically significant with an adjusted R-square of 0.506, which means that 50.6% of the variance is accounted for by the predictors in the model. The observed significant level of ANOVA (F-test) is less than 0.001; this implies that a linear relationship exists between the dependent variable and at least one of the independent variables in the model. In examining the coefficients, the results showed that the understanding motive (p<0.001) is positively and significantly related to the satisfaction obtained from NGO participation. This indicates that NGO leaders will increase their satisfaction when they are motivated by reasons related to the understanding factor, thus H4e is rejected and the beta of the understanding motive is 0.507. However, results show that the career, enhancement, protective, social and values motives appear to be insignificant for the variance of satisfaction obtained from NGO participation, therefore H4a, H4b, H4c, H4d and H4f are supported. According to the findings of the study, only one motivational function, the understanding motive, can significantly explain respondents’ satisfaction in NGO participation. According to Clary et al. (1998), the functions of volunteerism are related to the types of volunteer activities to which a person might be attracted, with each of the six motivations associated with involvement in some type of activities and unrelated to others. In other words, the configuration of motivations varies with activity type. This study focuses on business or career related NGOs, contributing 61.6% of the sample, and on the non business or career related group, contributing 38.4% of the sample. The majority of respondents belong to social services related associations. Thus, respondents seem to be more concerned in motives that involve the opportunity to permit new learning experiences and the chance to exercise knowledge, skills, and abilities in the process of NGO participation. When these are being fulfilled, they find NGO participation is important and worthwhile, and can proceed with their intentions for future continuation in NGO participation. Furthermore, the results indicate that respondents’ motivation to participate in NGOs is not significantly aligned with their career purpose, and neither is the social function that involves the opportunities to be with one’s friends or to engage in an activity viewed as important by the people the respondents know best. This indicates that respondents are quite independent on their ideas, and will not be easily influenced by the people they are close to. The protective function has been rated the least salient in the mean scores of the study, and results reveal that negative features of the self or to address one’s own personal problems do not seem important for respondents in their motivation to participate in NGOs.

The Motivation of NGO Leaders in Macau 53 TABLE 6 Results of Regression on the Satisfaction Obtained from NGO Participation and the Motivational Factors Variables Regression Coefficient Satisfaction obtained from NGO Participation Constant 0.517 4a: Career -0.022 4b: Enhancement 0.063 4c: Protective 0.095 4d: Social 0.121 4e: Understanding 0.507 ** 4f: Values 0.172 Adjusted R2 = 0.506, F-statistic = 17.701 ** ** p < 0.001 Another multiple regression was conducted to find out the associations between the six motives of the volunteer functions inventory with the numbers of NGO respondents actively participating. As shown in Table 7, the regression model for numbers of NGO participation was statistically significant with an adjusted R-square of 0.282, which means that 28.2% of the variance is accounted for by the predictors in the model. The observed significant level of ANOVA (F-test) is less than 0.001; this implies that a linear relationship exists between the dependent variable and at least one of the independent variables in the model. In examining the coefficients, the results show that the protective (p<0.001) motive is negatively and significantly related to the numbers of NGO participation, the protective motive makes the greatest contribution with beta of -0.692, the negative sign indicates that respondents will lower their intention to join more NGOs when they are motivated by reasons related to the protective factor. Furthermore, the enhancement (p<0.05) and social (p<0.05) motives are significantly positive in relation to the numbers of NGO respondents who participate; these indicate that the higher the motivation related to the enhancement and social factors, respondents will also have a higher intention to join more NGOs; thus H5b, H5c and H5d are not supported. On the other hand, results show that the career, understanding and values motives appear to be insignificant for the variance of numbers of NGO participation; therefore, H5a, H5e and H5f are supported. Results show that enhancement, protective and social motives can significantly explain respondents’ behaviour in their decision to join more NGOs. The enhancement and social motives will bring a positive relationship with the numbers of NGOs to participate, while there is a negative relationship between protective motive and the numbers of NGO participation. This indicates that respondents would like to join more than one organization, as they believe this is an opportunity for increasing one’s self-esteem and a way to make new friends.

Choi Mio Kuan and Siew-Huat Kong 54 TABLE 7 Results of Regression on the Relationship between the Numbers of NGO Participation and the Motivational Factors Variables Regression Coefficient Numbers of NGO participation Constant 1.935 * 5a: Career 0.169 5b: Enhancement 0.328 * 5c: Protective -0.692 ** 5d: Social 0.248 * 5e: Understanding -0.061 5f: Values -0.073 Adjusted R2 = 0.282, F-statistic = 7.404 ** ** p < 0.001, * p < 0.05 DISCUSSION NGOs hold positions of considerable community respect, and are responsible for delivering services to some of the most vulnerable members of the community. As NGOs are private organizations, but operating for public purposes with public support, it is incumbent on the Boards to ensure that their key stakeholders (clients, government and donors) are dealt with openly, honestly and responsively. An NGO should put in place a clear vision and mission, backed up by strategic planning and programme evaluation to ensure that programmes are delivered to meet the fundamental purpose of the Board. Setting the vision, mission and strategy of an NGO is the most important role the Board undertakes. It provides the framework within which the management of the NGO operates under the Board’s direction. The development of organizational mission, vision and supporting strategies is a role that is ideally completed in partnership with the management of the NGO. The commitment of the management is required to achieve the desired outcomes. The study reveals that men occupy a large percentage of individuals who are participating in business or career related NGOs in Macau. It seems that men are still dominating the management positions of these organizations, as the president, board of directors or committee members, and they possess the right of deciding the overall direction and management of the organizations. It should also be noted that nearly half of the sample are individuals with age 44 or above, of which around 20% were over 55 years old; this indicates that membership in these associations seems like a life-long participation. On the other hand, there also exist Chinese associations that have their origin in clans or traditional linkages and some kind of patriot beliefs towards China. Certain business-related associations operate on the basis of this network of clans and traditional linkages, and therefore it is not surprising to find commercial

The Motivation of NGO Leaders in Macau 55 associations organized on the basis of ethnic identity. These somehow encourage members to stay in the associations for long periods of time. Although NGOs are sometimes considered to act as a mediator between the government and the public, it should not be forgotten that the government has by some means promoted the development of NGOs. Given the importance of business and professional associations and labour unions to the economy of Macau, the government has given much attention to these organizations. They have always played a significant role in the government’s consultation network. Thus, under this environment, there exists close connections between organizations, and this may also explain why individuals are often involved in the participation of more than one NGO and are attending NGO activities frequently. The present situation of traditional business associations makes it difficult for young potential elites to take part in high management positions in the organizations, since traditional associations are comparatively conservative than new established organizations. In spite of this, they are taking a positive step to train young leaders by establishing subsidiaries like youth committees, which could serve as a bridge in training and developing future leaders for the organization. In analyzing the findings of the study, among the six motivational factors of the volunteer functions inventory, with regard to the first three prominent factors of motivation which are values, understanding, and enhancement in driving them to join NGOs, the results were similar to that of Clary et al. (1998), Okun et al. (1998), and Zappala (2003), although past studies found that values was the most important factor, which was different from the present study of the understanding factor. According to the demographics of the respondents, at least 67.7% were over 30 years of age, indicating that the majority were middle aged or mature individuals. Therefore, when they had accumulated certain experience in society, they would like to gain new perspectives and knowledge of the world. By participating in NGOs, they could have the opportunity to learn through direct, hands-on experience, to develop and practice skills that might otherwise go unpractised in the past. The study investigated the motivational differences of three subgroups of the respondents. Findings indicated that there was no difference in the mean scores of business or career related and non business or career related respondents in their motivations to participate in NGOs, except for the protective and values factors. Similar results were also found in comparing the mean scores of respondents with age 43 or below and those with age 44 or above. The results could also reveal the difference in what young participants and elder participants see as the motivations to join NGO. Young participants may be more concerned in trying to obtain the affirmation of the society; they also require some time to be accustomed to their working environment, and therefore they may regard NGO participation as a way to escape from this pressure. On the other hand, elder participants have accumulated certain experience in society, so may not see the protective as an important factor that drives them to participate in NGOs. Moreover, results also show that business or career related respondents place more importance to the values function than non business or career related respondents. It may be surprising that those respondents involved in social services or volunteer work should be emphasizing to serve the community as one of their major objectives. It should be noted that both groups regard the

Choi Mio Kuan and Siew-Huat Kong 56 values function as the second prominent factor in NGO participation; the possibility in their difference may be taken into account by the possibility that non business or career related respondents, who are younger participants, are seeing NGO participation not merely as a place to serve, but also as a place to learn and enhance themselves. Therefore somehow less attention was given to the value factor as compared to business or career related respondents. While comparing male and female respondents of the sample, female respondents generally score higher means for all the motivational factors except the social factor. The results resemble the findings conducted by Papadakis (2004), whose findings indicate that females score higher means for all the motivational factors than male respondents do. In this study, the protective factor showed significant difference on the behaviour of male and female respondents to join NGOs. This may somehow indicate that, though women’s social status has been increasing when compared to the past, they may still encounter some pressure when they compete with men in career aspects, therefore NGO participation may serve as an important tool to build their confidence and to reveal their abilities in another way. The mean scores of respondents towards their satisfaction from NGO participation were quite high. The result may be due to the fact that respondents surveyed were directed to the board of directors, being the committee that undergoes the overall decision making of the organization, and they would possess certain leadership abilities and commitment. The success of the organization will increase respondents’ feeling of achievement and thus their satisfaction from NGO participation. When the satisfaction obtained from NGO participation was regressed with the motivational factors, the results showed that only the understanding factor positively predicted satisfaction, with an adjusted R-square of 50.6%. Thus if the reasons connected with the understanding motive were fulfilled, respondents would likely feel it worthwhile to participate in NGO activities. Therefore, NGOs may try to consider including persuasive messages related to the understanding factor when they process membership recruitment. According to the finding of Clary et al. (1998), the scores from individuals’ VFI’s can be used to predict evaluations of persuasive messages to volunteer. These scores can also be used to predict satisfaction with volunteer activities based on how well the persuasive messages or volunteer activities match individual motivations to volunteer. The study also conducted analysis by regressing the number of NGO participated by respondents with the motivational factors. According to the findings, three of the six motive factors, namely enhancement, protective, and social showed a significant relationship with the numbers of NGO respondents who would participate. If an increase in the reasons attached to the enhancement factor like some individuals join associations to serve the purpose of allowing the individual to engage in psychological development and enhance their esteem; or an increase in the reasons attached to the social factor like to view NGO participation as an opportunity to help them fit in and get along with people or groups that are important to them, participants reveal a behaviour to join more NGOs. On the other hand, as the protective factor was a negative significant predictor, participants would not increase the numbers of NGO they participated in in order to reduce inner anxieties and conflicts or to combat feelings of inferiority. When joining more than one NGO is a common practice in the territory, respondents may to some extent be influenced by the behaviour of other people around them or those that

The Motivation of NGO Leaders in Macau 57 they would have frequent contacts, or sometimes may be as simple as to ‘give face’ to the inviter of the organization. However, results also showed that beyond the social factor, respondents are more likely to consider if any benefits could be obtained, and this may probably include some kind of personal enhancement. CONCLUSIONS Limitations of the Study The present study involved respondents who are active NGO participants; whether the findings could be generalized to potential NGO participants is an empirical question. The measures of motivation used in the present study are based upon the assumption that respondents answer accurately to the types of questions that are posed (Smith, 1981). It is possible that two types of response bias may influence the motives avowed by individuals. On the one hand, the impression management response bias refers to a deliberate effort to make a favourable impression on an audience. On the other hand, the self-deceptive positive response bias refers to the tendency to give self-reports that are honest but overly positive (Paulhus, 1984). Another limitation is that the study is based on the functional approach to volunteerism being applied to the participation of respondents on NGO. It should be noted that NGO activities do not merely involve volunteer work; as respondents were the president or board of directors of associations, there is the possibility that they were only involved in the decision-making process of NGO activities but not the actual participation in volunteer work to beneficiaries. This differs from the volunteer subjects reported by Clary et al. (1998), the difference in findings from the previous research (Clary et al., 1998; Okun et al., 1998; Zappala, 2003) with regard to the mean rank orders of the motivational factors thus exist. Further research is necessary to involve overall members of the associations, not merely committee members as intended in this study, in order to apply fully the volunteer functions inventory proposed by Clary et al. (1998). The study is only based on the motivations to volunteer, but the reasons to volunteer are also attributed to factors which may exist due to the particular cultural environment of the community. For the case of Macau, the establishment of associations is in connection to legislative elections, because only registered associations qualify for a constituency in elections of the functional group division. Therefore, this political factor should be an important factor included in future research when exploring the motivation behind NGO participation. Implications for Practice An important tool for recruiting volunteers is to assess their motives for volunteering (Clary et al., 1992). The present study demonstrated using the volunteer functions inventory (VFI) to

Choi Mio Kuan and Siew-Huat Kong 58 assess the motivation on NGO participation. The VFI is easy to administer and to score. Clary et al. (1998) suggest that people can be recruited into volunteerism by appealing to their own psychological functions. College students are more likely to express an intent to volunteer when they are exposed to persuasive messages that are tailored to the most salient motive for volunteering (Clary et al., 1998). According to the findings of this study, the understanding factor plays the most important role in motivating an individual to participate in NGO. Recruitment messages should therefore consider statements and messages related to the understanding factor. Many people realize the importance of non-governmental organizations in Macau. Previous research conducted mostly focused on analyzing the overall organizations, the macro environment, and little research was intended to examine the behaviour or motivation of the participants of non-governmental organizations itself. This study concluded that if participants belong to business or career related organizations, the first three personal motivations that can attract them in joining NGOs are factors relating to having the opportunities to increase their knowledge, to make good use of unpractised abilities, to put into action some humanitarian values or altruistic concerns, and finally to be able to have personal development and enhance their self-esteem. It is interesting to note that a majority of the subjects of this study participate in job-related associations, but the career factor of motivation only accounted for a moderate affect in their decision to join an NGO. The reason for this is that most business or career related organizations involve conditional situations, such as one must be a dentist in order to be qualified as a member of the dentists association or one must be a taxi driver in order to enter the taxi drivers’ association. Therefore, other motivations like understanding or values serve as more important factors to drive or retain members to participate actively in NGOs. The findings of the study have revealed the motivational factors of the president or the board of directors in joining NGOs. They have also shown high satisfaction in their participation. However, in order for the NGO to have long-term development, it is important to examine the behaviour of the members. Some scholars and experienced NGO participants have pointed out that one of the main reasons for the organization of NGOs is to allow citizens to connect with society by means of joining NGOs, provide a channel for NGO participation, and to be involved in social services. It seems that many NGOs are not very successful in reaching this target. It was criticized that resources are being distributed diversely when too many associations exist, the activities of some NGOs are concentrating too much on fellowship, few activities are related to professional development issues, reducing the ability of NGOs to unite members in exchanging ideas for future growth. Some NGOs are not emphasizing in training new efforts for their associations; this may also hinder interested elites from joining NGOs. It was also found that people were not participating in social activities, partly because of their long working hours or their having to work on shift, which makes it hard for them to spend time in these activities. NGOs should try to find out what the need is of their target members and the reasons why they are not participating, to ensure a thorough understanding of their members; therefore, it is important that research studies should be conducted. By emphasizing in examining individual motivational reasons for participating in NGOs, further studies could be conducted using the volunteer functions inventory model to examine the motivations behind

The Motivation of NGO Leaders in Macau 59 members’ participation or factors that may attract potential individuals in recruitment. NGOs may also be able to find a direction in how to adjust their policies and activities that are for the benefit and interests of their members. Recommendations To conclude, volunteer motivations may predict intention of involvement in a volunteer activity and perhaps these motivations are the ones to be pursued by the organizations in order to recruit their volunteers. Thus, it is important to learn about the factors that lead people to volunteer in different organizations, to understand these factors and use them successfully in the planning, recruiting, and managing process. The volunteer functions inventory deals with six motivational factors, and this should lead to the future development of a conceptual model that includes more factors such as leadership development, team building and achievement, and balance between the costs and benefits. Different types of organizations should recruit members according to their purpose of establishment; the volunteer functions inventory could serve as guidance for application. The NGOs in Macau are numerous, but the majority of them are small in size. Therefore competition exists in membership recruitment among organizations, and the problem of membership retention is also a critical issue faced by organizations. It is often suggested that NGOs with similar objectives join together to collaborate on projects that are of interest to both parties. These joint forces will lead to better allocation of resources, easier to arouse public attention, and the cooperation between different organizations will also bring new experience which is valuable to the development of the organization and the members themselves. In addition, NGO activities are not restricted to local issues; cooperation between the organizations of the territory and other neighbourhood areas is increasing. These will serve as an opportunity for young, energetic elites who are interested to participate in NGO activities to gain experience over a wider scope, and by means of the training of new efforts, Macau can secure the growth of a healthy, ongoing civil society. REFERENCES Clary, E.G. & Snyder, M. (1991). A functional analysis of altruism and prosocial behavior: The case of volunteerism, In Clark, M. (ed.). Review of Personality and Social Psychology, 12. Newbury Park, CA: Sage. Clary, E.G., Snyder, M. & Ridge, R. (1992). Volunteers’ motivations: A functional strategy for the recruitment, placement, and retention of volunteers. Nonprofit Management and Leadership, 2, 333-350. Clary, E.G., Snyder, M & Stukas, A.A. (1998). Volunteer motivations: Findings from a national survey. Nonprofit and Voluntary Quarterly, 25, 485-505. Clary, E.G., Snyder, M., Ridge, R.D., Copeland, J., Stukas, A.A., Haugen, J., & Miene, P. (1998). Understanding and assessing the motivations of volunteers: A functional approach. Journal of Personality and Social Psychology, 74, 1516-1530. Edele, A. (2005). Non-Governmental Organizations in China. Geneva: Centre for Applied Studies in International Negotiations.

Choi Mio Kuan and Siew-Huat Kong 60 Katz, D. (1960). The functional approach to the study of attitudes. Public Opinion Quarterly, 24, 163-204. Martens, K. (2002). Mission impossible? Defining nongovernmental organizations. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 13, 3, 271-285. Okun, M.A., Barr, A. & Herzog, A.R. (1998). Motivation to volunteer by older adults: A test of competing measurement models. Psychology and Aging, 13, 115-126. Papadakis K., Griffin, T. & Frater, J. (2004). Understanding volunteers’ motivations. Proceedings of the 2004 Northeastern Recreation Research Symposium, March 20-28, New York: Bolton Landing. Paulhus, D.L. (1984). Two-component models of socially desirable responding. Journal of Personality and Social Psychology, 46, 598-609. Rifkin, J. (1996). The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era. New York: Putnam Book Salamon, L.M., Anheier, H.K., List, R., Toepler, S., Sokolowski, S.W. and Associates (1999). Global Civil Society: Dimensions of the Non-profit Sector. Baltimore, MD: The Johns Hopkins Center for Civil Society Studies. Smith, D.H. (1981). Altruism, volunteers, and volunteerism. Journal of Voluntary Action Research, 10, 21-36. Smith, M., Bruner, J. & White, R. (1956). Opinions and Personality. New York: Wiley. Snyder, M. & Cantor, N. (1998). Understanding personality and social behavior: A functionalist strategy. In Gilbert, D., Fiske, S. & Lindzey, G.. (eds.) The Handbook of Social Psychology, 1. New York: McGraw-Hill. Snyder, M & Ickes, W. (1985). Personality and social behavior. In Lindzey, G. & Aronson, E. (eds.) The Handbook of Social Psychology, 2. New York: McGraw-Hill. Zappala, G.. (2003). The Motivations and Benefits of Employee Volunteering: What do Employees Think? Sydney: The Smith Family.

Euro Asia Journal of Management Issue 33, Vol. 17, No.1, June 2007, pp. 61-77 MARKET STRUCTURE AND PERFORMANCE IN MACAU BANKING* NG SAN U1 and FU XIAOQING2 ABSTRACT This paper studies the relationship between market structure and performance of Macau’s banking sector during the 1995-2004 period. The model incorporates measures of concentration, market share, X-efficiency, and scale efficiency into the estimating equation, to test both the market-power and the efficient-structure hypotheses in Macau’s banking sector. The empirical results only support the relative-market-power (RMP) hypothesis. The finding implies that the big banks in Macau were able to exert market power in setting prices and earn higher profits. There is no support for any of the efficient-structure hypotheses and the quiet life hypothesis. The major policy lesson is that Macau’s banking sector should be closely monitored by the regulatory authorities in terms of antitrust enforcement. * The authors thank Dr Carlos Noronha, Dr Anna Vong and Mr Henry Brockman for their helpful comments. All errors are our responsibility. 1 Corresponding author: Macao Economic Services, Macau, China. Email: ngsan12@yahoo.com 2 Faculty of Business Administration, University of Macau, Taipa, Macau, China. Email: maggiefu@umac.mo

Ng San U and Fu Xiaoqing 62 INTRODUCTION The structure–performance relationship has been studied extensively with a view to assessing the degree of competition in a banking sector and related regulatory issues. Two competing hypotheses seek to explain the relation between structure and performance in the banking sector. The market structure hypothesis postulates that banks in a concentrated market can charge higher loan rates, pay lower deposit rates, and lower collusion costs through their market power, thus generating more profits. In contrast, the efficient-structure hypothesis states that efficient banks obtain higher profitability and greater market share because of their efficiency, which lead to a more concentrated market as well. The implications for competition policy are in direct opposition: anti-trust regulation is supported by the market-power hypothesis but rejected if the efficient-structure hypothesis holds. This study employs the model incorporating measures of concentration, market share, X-efficiency and scale efficiency into the estimating equation, to test both the market-power and the efficient-structure hypotheses in Macau’s banking sector over the period 1995-2004. Moreover, it addresses the question of whether the big banks in Macau enjoy a ‘quiet life’ or not. The findings of this study suggest that Macau’s banking sector should be closely monitored by the regulatory authorities in terms of antitrust enforcement. This paper contributes to the literature in a number of directions. First, it is the first empirical study investigating the structure-performance relationship for Macau’s banking sector. Second, it tests the quiet life hypothesis in Macau’s banking sector for the first time. Third, its dataset covers a relatively long period (1995-2004). Now we will provide a brief introduction to Macau’s banking sector and then we will illustrate the theoretical framework and review the previous empirical studies. Then the methodology and data used will be discussed and after that the empirical results will be presented. Finally, we will conclude by summarizing the major findings. MACAU’S BANKING SECTOR Macau’s banking sector has experienced significant changes during the last decade. The Macau government imposed a conservative policy on its banking system during the first half of the 20th century since there was no banking law. Banco Nacional Ultramarino S.A. (BNU) was the first commercial bank that officially registered in Macau in 1902. Besides BNU, there were many family-owned currency exchange houses providing the basic banking services in Macau. In 1964, the Bank Supervision Board was established to manage foreign exchange settlements regarding Macau’s trade with other Portuguese dependent territories. Meanwhile, the Banking

Market Structure and Performance in Macau Banking 63 Act (Decree-law no. 411/70) of Portugal was implemented in Macau. As the Macau economy began to boost, a legal entity – Issuing Institute Macau (IEM) – was established in 1980 to replace the Bank Supervision Board. In 1989 the IEM became the Autoridade Monetaria e Cambial de Macau (AMCM) which marked the inception of a real practice of central banking in Macau. However, apart from AMCA, some functions normally carried out by a central bank have been performed by the BNU since 1905 and the Bank of China (BOC) since 1995. The functions mainly include acting as the agent for the issuance of currency notes, maintaining the accounts of government departments and helping the AMCM to manage the clearing system. In 1993, the Financial System Act (Decree-law no. 32/93/M) was announced to replace the first banking law in Macau (Decree-Law no. 35/82/M). It reappraised the traditional scope of banking activity, the regulatory of operations, the role of the supervisory authorities, the liquidity ratio and capital adequacy ratio. Moreover, it put emphasis on preventative measures - highlighting particular prudential rules for controlling entry requirements (in terms of the amount of shared capital), monitoring the suitability of qualified shareholders and managers, new operating risks - and strengthened the power of the AMCM over the banking sectors. Banks in Macau obtain either a full banking license that can conduct all kinds of banking activities or an off-shore banking license. At the end of 2004, the number of authorized banking institutions in Macau was 23, including ten locally incorporated full-license banks, twelve branches of banks (full-license) outside Macau as well as one offshore bank. Apart from those banks set up by the local entrepreneurs, the capital of the rest mainly came from jurisdictions or regions such as the mainland China, Hong Kong, Portugal, USA, United Kingdom, France, Singapore and Chinese Taiwan. Like many banks in the world, banks in Macau rely on the traditional lending business as their major source of income and profit. The interest income accounted for more than 85% of the total operating income of Macau banks before 2001. The operating profit of the banking sector remained solid in the middle of the 1990s, staying above MOP1 billion between 1993 and 1998. However, in 1997 the worst financial turmoil – the Asian Financial Crisis occurred. As loan repayments in 1999 soared rapidly, when the non-performing loan ratio surged, the banks had to make large provisions. As a result, Macau’s banking profit was totally eroded. Moreover, as local interest rates reached historically low levels in 2003, saving deposits with Macau banks became virtually non-interest bearing investments. The low nominal interest rates had also caused the Macau’s bank profitability to decline. And finally, the weak domestic demand for loans heated up the pricing competition in banking sector. After suffering these extreme difficulties, Macau’s banking sector sought many ways to survive and to be more profitable. First, since the sluggish economy had led to the deterioration of the quality of Macau banks’ assets, they chose to actively deal with their problematic assets in order to improve asset quality and solidify their overall financial stability. The improvement in the operational aspects of the banks was assisted by positive factors such as rapid economic development, persistent low interest rates, and improved local property markets. The banks also acutely strengthened related internal controls and credit risk management by separating the functions of marketing and credit approval and by establishing credit committees for assessing

Ng San U and Fu Xiaoqing 64 and approving credit. They began to exercise more in-depth assessments of their borrowers, analyzing the borrowers’ actual operating results, development policies, management philosophy, cash flow and financial status. In addition, some banks used early warning systems which allowed them to monitor repayment record and visit frequency. Internal grading of customers was also used to avoid high-risk customers. Second, Macau banks tend to use internationally accepted risk management principles to improve their overall risk management. At the same time, an increasing number of Macau banks adopted International Accounting Standards as the basis for the preparation of financial statements. This enables banks to disclose their financial statuses according to international standards as well as enhance the reporting of the quality of risk management. Third, due to the narrowing of interest margins, the market demand for investment products increased. Apart from traditional services such as deposits, loans and remittances, the banks also started to develop fee-based businesses and offer tailor-made financial services to customers by providing securities, investment funds and insurance products. The Renminbi business that was launched in 2004 also helped the diversification of banking products. Finally, high-technology driven operations made the banks launch many new services such as phone banking, internet banking and 24-hour self-services. These measures enriched service channels and provided convenient and better quality banking to customers. As a result, the banking sector began to recuperate gradually in 2001, after confronting all these challenges. In 2002, the operating profits recorded a significant increase compared to 2001. However, it is worth noting that this satisfactory result was not credited to the traditional lending business but to the rise of non-interest incomes, particularly in foreign exchange and securities transactions. As the year 2001 was the turning point of the Macau banking sector according to the recovery of profitability and also the changes of business scope, it is very important to analyze Macau’s banking sector both before and after this year. LITERATURE REVIEW The early empirical literature revealed two major hypotheses on the structure-performance relationship in banking. The Market-power theory (MP) states that market power is the main factor of causing profitability to change. In a concentrated market, market imperfections are present. Such imperfections can be caused by collusion, high market concentration, or by entry and exit barriers. On the other hand, banks are able to exert influence on prices charged and paid in the market that deviates from perfect competition. Banks can earn more profit by exercising market power to set higher prices. Which market structure variable is the best proxy for market power and thus for market imperfections determines the difference between two main types of market-power hypothesis: the structure-conduct-performance hypothesis and the relative-market-power hypothesis (Punt & Rooij, 1999). The Structure-conduct-performance (SCP) hypothesis says a change in the market

Market Structure and Performance in Macau Banking 65 structure or concentration of banking firms affects the way banks behave and perform. The more concentrated the market, the more market power the banks have, which means they can be inefficient without being forced out of the market. SCP assumes that banks in a concentrated markets are able to exert market power in setting prices less favorable to consumers (lower deposit rates, higher loan rates) irrespective of their efficiency, and have earn supernormal profits (Bain, 1951). The Relative-market-power (RMP) hypothesis asserts that banks with large market shares and well differentiated products are able to exercise market power in setting prices to earn supernormal profits, independent of how concentrated the market is. In this case there is no market-wide price setting, but only price setting by dominant banking firms with large market shares. Banks with smaller market shares are forced to operate as if under perfect competition and are unable to earn the same supernormal profits (Shepherd, 1982). The efficient-structure hypotheses (ES) offer a completely different explanation of the empirical findings. It argues that banks gain high profits and large market shares by operating efficiently. This may lead to a higher level of concentration. The efficient-structure hypotheses can be divided into the relative X-efficiency and relative scale-efficiency hypotheses. In other words, banks that are more efficient have lower costs, which results in higher profits. The relative X-efficiency (ESX) hypothesis states that banks are able to gain higher profits as a result of superior management and productive technology moving the bank closer to the best-practice, lower-bound cost curve. Moreover, these banks may increase their market share under higher X-efficiency and profits, and result in high levels of concentration (Demsetz, 1973, 1974; Peltzman, 1977). The profit-structure relationship is found because of the positive effect of X-efficiency on both profitability and market shares, and possibly on market concentration. Because of these simultaneous linkages, a significant but economically meaningless relationship between profitability and market structure is found when no correction for X-efficiency is made. Under the relative scale-efficiency (ESS) hypothesis, the difference in bank profitability is not caused by difference in the quality of management or productive technology, but by difference in the level of scale efficiency at which a bank is operating (Lambson, 1987). The policy implications are quite different. The market-power hypotheses imply that antitrust enforcement is productive, while the ESS hypothesis suggests that such enforcement may be counterproductive. Banks operating at optimal economies of scale have lower costs and consequently, higher profits, which may lead to a larger market share and/or greater concentration. Using 1980s data on US banks, Berger (1995) developed a series of tests which included direct measures of both market structure and efficiency in one model. He reported limited support for both the RMP and ESX hypotheses. Employing data on banks across 11 European countries over the period 1988-1991, Goldberg and Rai (1996) found evidence favouring the RMP hypothesis for all banks except for those located in countries with low concentration ratios, where the evidence favoured ESX hypothesis. Berger and Hannan (1997) employed US bank data (1985) and found more support for the structure-conduct-performance paradigm than for relative market-power or efficient-structure hypothesis.

Ng San U and Fu Xiaoqing 66 Berger and Hannan (1997) also tested the ‘quiet life’ hypothesis, based on the observation made by Hicks: ‘The best of all monopoly profits is a quiet life.’ (Hicks, 1935: 8). It is posited that firms with greater market power opt for a more relaxed environment in which less effort is put into the rigours of maximising cost efficiency, at the expense of somewhat lower profits. As a result of this slack management, banks with greater market power are inefficient. Their findings supported the quiet-life hypothesis. Using Spanish banking data from 1990-1993, Maudos (1998) found support for both the X-efficiency and relative market-power hypotheses. Goddard et al. (2001) reported evidence favouring the SCP, ESX, and ESS hypotheses for banks from 15 European countries over the period 1989-1996. Based on Portuguese banking data during the nineties, Mendes and Rebelo (2003) showed that both the SCP and the ESX hypotheses held in the first half of the nineties but after 1994, there was more evidence for the RMP and ESX hypotheses. The most recent study on this topic is Fu and Heffernan (forthcoming). They investigated the relationship between market structure and performance in China’s banking system over the period 1985-2002. They measured both the market power and efficiency hypotheses in one model and also extended the model to consider the impact of bank size/ownership effect and quiet life hypothesis. The results supported RMP hypothesis during the first banking reform stage, but X-efficiency was more favoring during the second reform stage. Furthermore, there is no evidence supported the quiet life hypothesis. METHODOLOGY AND DATA Methodology Following Berger (1995) and Goldberg and Rai (1996), equation (1) is used to test for the validity of the four hypotheses: Pi,t=a0+a1MSi,t+a2CR5t+a3X-EFFi,t+a4S-EFFi,t+a5LOTODEPi,t+a6PCIt+a7TDt+ei,t (1) where Pi.t : a measure of profitability of bank i at time t; MSi,t : market share (in terms of deposits) of bank i at time t; CR5t : a measure of market concentration, such as five-bank concentration ratio (CR5) or Herfindah1-Hirschman index (HERF) of concentration at time t; X-EFFi.t : cost to income ratio as a measure of managerial efficiency for bank i at time t; S-EFFi,t : natural logarithm of total assets as a measure of scale-efficiency for bank i at time t; LOTODEPi,t : loans to deposits ratio of bank i at time t; PCIt : the GDP per capital at time t;

Market Structure and Performance in Macau Banking 67 TDt : a time dummy variable, 1 for the 1995-2001 period, and 0 otherwise; ei,t : an error term. Regarding the efficient-structure hypotheses (ES), causation runs from efficiency differences to profits and market structure. That is, more efficient banks should have higher profits, so the signs of the coefficient on X-EFF and S-EFF should be significantly negative and positive respectively, that is, a3<0, a4>0. CR5 and MS, although endogenous in the ES model, may be included as irrelevant explanatory variables provided that the error terms in the recursive structural model are mutually uncorrelated. Their irrelevance stems from their logical ordering in the model, since they are correlated with profitability only because they reflect the effects of efficiency and the other variables, which are controlled for in this equation. Similarly, under the market-power hypotheses, a1 should be positive if the relative-market-power hypothesis holds or a positive and significant a2 confirms the structure-conduct-performance. The reduced form in (1) allows all four hypotheses to be valid simultaneously (Berger 1995). In order to explain the structure-performance relationship spuriously, both profits and the market structure variables must be negatively related to X-EFF and/or positively related to S-EFF. To test for the condition that EFF is related to structure as well as to profitability, two additional equations are estimated: CR5t=a0+a1X-EFFi,t+a2S-EFFi,t+a3LOTODEPi,t+a4PCIt+a5TDt+ei,t (2) MSi,t=a0+a1X-EFFi,t+a2S-EFFi,t+a3LOTODEPi,t+a4PCIt+a5TDt+ei,t (3) The necessary condition is satisfied if the signs on the coefficients X-EFF and S-EFF are significantly negative and positive respectively in equations (2) and (3). Therefore, the efficient-structure hypothesis is strictly valid only if more efficient banks are more profitable, with a larger market share and/or a higher level of market concentration. X-EFFi,t=a0+a1 CR5t +a2MSi,t+a3LOTODEPi,t+a4PCIt+a5TDt+ei,t (4) S-EFFi,t =a0+a1 CR5t +a2MSi,t+a3LOTODEPi,t+a4PCIt+a5TDt+ei,t (5) Equations (4) and (5) embody a version of the Hicks’ (1935) quiet-life hypothesis in which banks with greater market power may take part of the gains from noncompetitive pricing not as profits, but as a more relaxed environment in which less effort is put into the rigors of maximizing cost efficiency. Determination of which of the inequalities in (4) and (5) holds in strict from depends upon which market structure variable(s) are associated with market power, CR5 or MS, and upon which dimension(s) of efficiency banks with market power become lax in pursuing, X-EFF or S-EFF. Therefore, the signs of the coefficients on CR5 and/or MS should be significantly positive and negative respectively in equations (4) and (5). If both sets of relations are found to hold, the estimation may cause a simultaneous equation bias (Berger & Hannan, 1997).

Ng San U and Fu Xiaoqing 68 Data In order to study the profit-structure relationship in Macau’s banking sector, this paper includes the annual data for all the banks operating in Macau. The full sample covers the period from 1995 to 2004 with 207 observations. Most of the data used in this study was collected from the banks’ annual reports. The AMCA, the government agent that supervises and regulates the financial system in Macau, also provided important data such as the number of employees and the average GDP per capital. The variables are described below. Table 1 shows the descriptive statistics of all the variables. The natural logarithm of pre-tax net income (P) is used in this study to measure bank profitability. Two common measures of concentration, the five-bank concentration ratio (CR5) and the Herfindah1-Hirschman Index (HERF) are used. CR5 is defined as the ratio of the total deposits of the five largest banks to the total deposits of all the banks in a given year. As shown in Table 2, BOC, BNU, Tai Fung Bank, Seng Heng Bank and Wing Hang Bank are the five largest banks in Macau in terms of total assets, total deposits and total loans. CR5 should be close to 0 for a perfectly competitive market and 100 for a monopoly. HERF is defined as the sum of squared market shares of deposits of the sample of banks in a given year. The index is slightly greater than 0 for a perfectly competitive market and 100 for a monopoly. HERF takes into account both the number of banks and the inequality of market shares. Generally, the more banks there are in the market, the lower is the value of HERF, ceteris paribus. HERF increases as the markets shares of a given number of banks become less equal (Waldman & Jensen, 2001). However, Hay and Morris (1991) criticized the HERF measure because it uses a particular weighting between the inequalities of the firms’ market shares of the number of firms. Nonetheless, HERF and CR5 are the most common measures used in virtually all the published studies in this area. In this study, market share (MS)3 is defined as the ratio of an individual bank’s total deposits to the total deposits of all banks in a given year. 3 MS: in terms of deposits is the most commonly used measure of market share.

Market Structure and Performance in Macau Banking 69 TABLE 1 Descriptive Statistics of Macau banking sector (1995-2004) Variables Mean Std. Dev. Max. Min. No. of observations P 18.6876 1.3897 20.2549 0.07696 207 HERF 0.1595 0.0092 0.1765 0.1452 207 CR5 0.7254 0.0236 0.7478 0.6762 207 MS 0.0483 0.0736 0.34709 0.0003 207 X-EFF 2.1514 3.1996 35.5461 0.029 207 S-EFF 20.5849 1.4526 24.36 17.1519 207 LOTODEP 0.6499 0.8057 8.5404 0.0001 207 PCI 0.0545 0.064 0.1746 0.0104 207 TD 0.4251 0.4956 1 0 207 Notes: P=natural logarithm of pre-tax net income, CR5=the 5 bank concentration ratio, HERF: Herfindahl-Hirschman index, MS: market share, X-EFF: X-efficiency, S-EFF: Scale-efficiency, PCI: GDP per person, LOTODEP: loans to deposits ratio, TD: Time Dummy variable, which is 1 for 1st period (1995-2001), 0 for 2nd period (2001-2004). X-efficiency measures whether banks are producing at minimum cost through superior management and/or technology. It is defined as the ratio of total cost to total income. Scale efficiency indicates whether banks with similar management and production technology are operating at optimal economies of scale. Scale efficiency is defined as natural logarithm of total assets in this study. Loan to deposit ratio4 (LOTODEP) shows the percentage of loans that are derived from deposits collected. It is used as a measure of credit risk. The higher the loan to deposit ratio, the greater the credit risk. Its coefficient could have either sign. Higher risk is related to not only a higher return if it’s a good-performing loan portfolio, but also a lower return if it’s a non-performing loan portfolio. GDP per capital (PCI)5 is used to control for factors affecting the supply of funds to banks. Its coefficient may have either sign in an imperfectly competitive market, because it may reflect either a greater or lesser elasticity of deposit supply. Time Dummy (TD) is employed to test if there is any significant difference between the two periods (1995 - 2001 and 2002 - 2004). 4 The most commonly used measure of risk in the literature is Non-performing loan ration. However, the data on NPLs is not available for Macau banks. 5 All PCI data are deflated by GDP per capital with 1995 as the base year.

Ng San U and Fu Xiaoqing 70 TABLE 2 Market share of individual banks in 2004 (KPMG, 2005) Banks Market Share in Total Assets Market Share in Loans Market Share in Deposits Banco de America (Macau) 1.31% 1.81% 1.26% Banco da China * 31.43% 24.93% 29.34% Banco Chines de Macau 0.19% 0.3% 0.09% Banco Comercial de Macau, S.A. 4.62% 6.79% 5.07% Banco Comercial Português, S.A. 0.13% 0% 0.15% Banco Delta Asia 2.32% 0.27% 2.16% Banco de Desenvolvimento de Cantao 1.87% 2.73% 1.31% Banco da East Asia 0.59% 0.9% 0.54% Banco Espírito Santo do Oriente 0.41% 0.38% 0.29% Industrial and Commercial Bank of China Limited 1.08% 1.73% 0.97% Banco Luso Internacional 5.6% 7.03% 1.43% Banco Nacional Ultramarino, S.A. * 8.53% 7.45% 6.81% Banco Seng Heng * 11.64% 9.48% 12.91% Banco Tai Fung * 14.93% 15.35% 16.04% Banco Weng Hang * 6.2% 8.72% 6.84% BNP Paribas 0.91% 0.47% 0.86% Citibank, N.A. 0.71% 0.58% 0.84% DBS Bank (Hong Kong) 0.86% 0.96% 0.91% Hang Seng Bank Limited 0.47% 1% 0.58% The HongKong & Shanghai Banking Corp. Limited 5.31% 5.14% 6.15% International Bank of Taipei 0.4% 0.4% 0.44% Liu Chong Hing Bank 0.52% 0.36% 0.51% Standard Chartered Bank 0.21% 0.77% 0.14% Note: Banks with * are the five largest banks in Macau. EMPIRICAL RESULTS The results obtained from the estimating equation (1) appear in Table 3 where the natural logarithm of pre-tax net income is the dependent variable and the concentration measures are the HERF and CR5 respectively6. Table 4 reports the outcomes from estimating equations (2) and (3), employing HERF, CR5 and MS as the dependent variables, respectively. Coefficients 6 Adjusted R2 is very low which is common in the literature.

Market Structure and Performance in Macau Banking 71 from estimating equation (4) and (5) appear in Table 5. Table 3 shows that the coefficient on MS is positive and significant regardless of the measure of concentration. Thus, the relative-market-power (RMP) hypothesis appears to hold: that is, banks with a higher market share and a well differentiated product ranges are able to exercise market power in setting prices to earn more profits, independent of market concentration. On the other hand, the coefficients on CR5, X-EFF and S-EFF are insignificant, which suggest that the SCP, ESX and ESS are not supported. This implies that more efficient banks in Macau might not be able to obtain higher profits. Only larger banks can earn higher profits even if the market is not highly concentrated. This finding is consistent with the fact that the larger banks have been developing fee-based businesses since 2001. Apart from traditional services such as deposits, loans and remittances, the banks had started to offer tailor-made financial services to customers such as a wide range of standardized financial products, investment funds and insurance products. These new and well-differentiated products had increased the banks’ non-interest income and thus their profitability. TABLE 3 Market-Power vs. Efficient-Structure: Estimation of equation (1) Dependent Variable = P -2.264 4.166 ﹝6.567﹞ ﹝13.132﹞ CR5 [0.73] HERF [0.751] 4.252 4.605 ﹝1.958﹞ ﹝1.922﹞ MS [0.031] MS [0.018] 0.019 0.017 ﹝0.03﹞ ﹝0.03﹞ X-EFF [0.528] X-EFF [0.573] 0.105 0.077 ﹝0.106﹞ ﹝0.102﹞ S-EFF [0.32] S-EFF [0.448] 0.052 0.047 ﹝0.12﹞ ﹝0.12﹞ LOTODEP [0.665] LOTODEP [0.699]

Ng San U and Fu Xiaoqing 72 TABLE 3 (continued) 2.597 3.279 ﹝1.925﹞ ﹝2.165﹞ PCI [0.179] PCI [0.132] -0.272 -0.414 ﹝0.367﹞ ﹝0.267﹞ TD [0.459] TD [0.123] 3.591 3.586 F [0.001] F [0.001] Adjusted R2 0.08 Adjusted R2 0.08 N 207 N 207 Notes: 1. P=natural logarithm of pre-tax net income, CR5=the 5 bank concentration ratio, HERF: Herfindahl-Hirschman index, MS: market share, X-EFF: X-efficiency, S-EFF: Scale-efficiency, PCI: GDP per person, TD: Time Dummy variable, which is 1 for 1st period, 0 for 2nd period. 2. White heteroscedasticity consistent standard errors are in brackes. To provide correct estimates of the coefficient covariances in the presence of heteroscedasticity of unkown form, White (1980) derived a heteroscedasticity consistent covariance matrix estimator. 3. P-values are in parentheses. 4. Coefficients are in bold if they are statistically significant at 10% or less. Table 3 also shows that the coefficient on LOTODEP is insignificant. LOTODEP is a measure of credit risk taken by the banks. This indicates that the bank risk factor has no significant influence on bank profits. PCI, as a measure of deposit supply, is also insignificant in Table 3. This implies that the deposit supply factor has no significant impact on bank profits. The result may be due to the fact that Macau’s citizens do not have alternative channels of investment. Depositing with the banks seems to be the only way for them to invest. The insignificant coefficient on TD suggests that there is no significant difference in bank profits before and after 2001. These findings are not surprising because banks in Macau are not as mature as those in the United States and Europe. For example, Macau banks lent great amounts of money to governmental enterprises in mainland China during the 1990s. Because of their strong government background the Macau banks did not therefore monitor or control the credit risk before and after the loans were made in general. Table 4 reports the results of estimating equations (2) and (3). The coefficient on S-EFF is significantly positive in all cases. This suggests that banks with greater scale efficiency can get a higher market share and increase their market concentration accordingly, despite not being able to obtain higher profits. However, the results shown in Table 5 indicate that this finding could be spurious, because the coefficient on MS is positively significant when S-EFF is the dependent variable, which implies the appearance of a simultaneous equation bias and suggests an endogenous problem.

Market Structure and Performance in Macau Banking 73 TABLE 4 Necessary condition of ES: Estimation of equations (2) and (3) Dependent Variable=CR5 Dependent Variable=HERF Dependent Variable=MS -0.000006 0.00045 -0.000007 ﹝0.0005﹞ ﹝0.0002﹞ ﹝0.001﹞ X-EFF [0.99] [0.812] [0.995] 0.003 0.001 0.037 ﹝0.001﹞ ﹝0.0004﹞ ﹝0.02﹞ S-EFF [0.003] [0.002] [0.00] -0.00006 0.00039 -0.009 ﹝0.002﹞ ﹝0.000749﹞ ﹝0.004﹞ LOTODEP [0.975] [0.608] [0.043] 0.11 0.071 0.225 ﹝0.038﹞ ﹝0.015﹞ ﹝0.089﹞ PCI [0.005] [0.00] [0.013] 0.028 0.003 0.014 ﹝0.005﹞ ﹝0.002﹞ ﹝0.012﹞ TD [0.00] [0.125] [0.225] 8.988 8.493 48.179 F [0.00] [0.00] [0.00] Adjusted R2 0.162 0.154 0.533 N 207 207 207 Notes: 1. CR5=the 5 bank concentration ratio, HERF: Herfindahl-Hirschman index, MS: market share, X-EFF: X-efficiency, S-EFF: Scale-efficiency, PCI: GDP per person, TD: Time Dummy variable, which is 1 for 1st period, 0 for 2nd period. 2. White heteroscedasticity consistent standard errors are in brackes. To provide correct estimates of the coefficient covariances in the presence of heteroscedasticity of unkown form, White (1980) derived a heteroscedasticity consistent covariance matrix estimator. 3. P-values are in parentheses. 4. Coefficients are in bold if they are statistically significant at 10% or less. Table 4 also shows that the coefficient on PCI is positively significant when CR5, MS or HERF is the dependent variable. This finding suggests that a greater elasticity of deposit supply in the market could lead to a higher level of market concentration and a greater market share. This is a common finding in the literature. The coefficient on TD is significantly positive when CR5 is the dependent variable. It indicates that there is a significant difference in the

Ng San U and Fu Xiaoqing 74 concentration level in terms of CR5 between the two periods (1995-2001 and 2002-2004). That is, the concentration level was higher in the first period (1995-2001). With regard to the Quiet Life hypothesis, Table 5 shows that the coefficient on MS is significant but incorrectly signed when both X-EFF and S-EFF are the dependent variable. Moreover, the coefficient on CR5 is also significant but incorrectly signed when S-EFF is the dependent variable. It suggests that banks in Macau did not enjoy a ‘quiet life’. The coefficient on LOTODEP is insignificant in both cases, which implies that the banks’ risk factors do not affect their efficiency level. The coefficient on PCI is significantly positive when S-EFF is the dependent variable. It suggests that banks could achieve greater scale efficiency in a market with more deposit supply. This is consistent with the previous finding and it is reasonable because the greater the deposit supply, the greater the ability to achieve scale efficiency. Finally, Table 5 also shows that the coefficient on TD is significantly negative when S-EFF is the dependent variable. It implies that there is a significant difference in scale efficiency between the two periods. In other words, banks in the second period were more scale efficient than those in the first period. This implies that banks in Macau with similar management and productive technology were operating at optimal economies of scale in the second period which suggests that Macau banks have improved scale-efficiency during 2002 to 2004.

Market Structure and Performance in Macau Banking 75 TABLE 5 The ‘Quiet-Life’ Hypothesis: Estimation of equations (4) and (5) Dependent Variable=X-EFF Dependent Variable=S-EFF Dependent Variable=X-EFF Dependent Variable=S-EFF -4.866 13.166 -5.987 33.306 ﹝10.147﹞ ﹝3.03﹞ ﹝25.99﹞ ﹝7.767﹞ CR5 [0.632] [0.00] HERF [0.818] [0.00] -5.165 14.32 -5.17 14.286 ﹝3.054﹞ ﹝0.912﹞ ﹝3.056﹞ ﹝0.913﹞ MS [0.092] [0.00] MS [0.092] [0.00] 0.054 0.05 0.058 0.036 ﹝0.285﹞ ﹝0.085﹞ ﹝0.285﹞ ﹝0.085﹞ LOTODEP [0.851] [0.558] LOTODEP [0.84] [0.676] -2.215 6.868 -2.145 7.781 ﹝5.672﹞ ﹝1.694﹞ ﹝5.839﹞ ﹝1.745﹞ PCI [0.697] [0.00] PCI [0.714] [0.00] -0.671 -0.809 -0.783 -0.545 ﹝0.772﹞ ﹝0.23﹞ ﹝0.729﹞ ﹝0.218﹞ TD [0.386] [0.00] TD [0.284] [0.013] 1.631 56.485 1.594 56.269 F [0.00] [0.00] F [0.00] [0.00] Adjusted R2 0.015 0.573 Adjusted R2 0.014 0.572 N 207 207 207 207 Notes: 1. CR5=the 5 bank concentration ratio, HERF: Herfindahl-Hirschman index, MS: market share, X-EFF: X-efficiency, S-EFF: Scale-efficiency, PCI: GDP per person, TD: Time Dummy variable, which is 1 for 1st period, 0 for 2nd period. 2. White heteroscedasticity consistent standard errors are in brackes. To provide correct estimates of the coefficient covariances in the presence of heteroscedasticity of unkown form, White (1980) derived a heteroscedasticity consistent covariance matrix estimator. 3. P-values are in parentheses. 4. Coefficients are in bold if they are statistically significant at 10% or less.

Ng San U and Fu Xiaoqing 76 CONCLUSIONS This paper carried out the first econometric study on the structure-performance relationship in Macau’s banking sector from 1995 to 2004. Following Berger (1995) and Goldberg and Rai (1996), this paper tested two market-power hypotheses: structure-conduct-performance and relative-market-power, together with the X-efficiency and scale-efficiency versions of the efficient-structure hypotheses. X-efficiency and scale-efficiency were regressed against concentration and market share to estimate whether the higher order condition for the efficient-structure hypotheses is satisfied. There was also a test to assess whether Macau banks enjoyed a ‘quiet life’. Several key findings emerged from the estimation of equations (1) to (5). First, the relative-market-power hypothesis best describes Macau’s banking sector during the period 1994-2005. Banks with a higher market share and a well differentiated product ranges were able to exercise market power in setting prices to earn supernormal profits, independent of how concentrated the market was. This finding is consistent with the fact that the larger banks have been developing fee-based businesses since the 1990’s. Apart from those traditional services like deposits, loans and remittances, the banks had started to offer tailor-made financial services to customers such as providing a wide range of standardized financial products, investment funds and insurance products. Thus, they may charge higher prices on their products simultaneously. Second, the results do not support the ‘quiet life’ hypothesis as none of the market share variables have a significantly influence on the efficiency variables. This suggests that banks in Macau with larger market share did not enjoy their ‘quiet life’ by opting for a more relaxed environment in which less effort is put into the rigors of maximizing management efficiency. Third, bank risk factor does not play an important role in explaining bank profits, market share or efficiency on average. Maybe it is because banks in Macau are not as mature as those in the United States and Europe. They do not follow the market operating approach. Another reason for this is that the ratio of loans to deposits is not a good proxy for bank risk in Macau. However, the data on the nonperforming loan ratio, the most appropriate proxy, is not available for most of the banks in Macau. Fourth, the results about GDP per capita suggest that greater deposit supply could lead to greater market concentration. Moreover, banks could achieve greater scale efficiency in a market with more deposit supply. Finally, banks in the second period (2002-2004) were more scale-efficient than those in the first period (1995-2001), while the market concentration level and bank market share were lower in the second period. In general, the empirical results only lend support to the relative-market-power hypothesis; none of the efficient-structure hypotheses are supported. Therefore, the key policy lesson is that the banking sector should be closely monitored by the AMCM.

Market Structure and Performance in Macau Banking 77 REFERENCES Bain, J.S. (1951). Relation of profit rate to industry concentration. Quarterly Journal of Economics, 65, 293-324. Berger, A.N. (1995), The profit-structure relationship in banking: Test of market-power and efficient-structure hypotheses. Journal of Money, Credit and Banking, 27, (2), 404-431. Berger, A.N. & Hannan, T.H. (1997). Using efficiency measures to distinguish among alternative explanations of the structure-performance relationship in banking. Managerial Finance, 23, (1), 6-31. Demsetz, H. (1973). Industry structure, market rivalry, and public policy. Journal of Law and Economics, 16, 1-9. Demsetz, H. (1974). Two systems of belief about monopoly. In Goldschmid, H., Michael-Mann, H. & Weston, J.F. (eds.) Industrial Concentration: The New Learning. Boston: Little, Brown & Co. Fu, X. & Heffernan, S. A. (forthcoming). The effects of reform on China's bank structure and performance. Journal of Banking and Finance. Goddard, J.A., Molyneux, P. & Wilson, J.O.S. (2001). European Banking: Efficiency, Technology, and Growth. Chicester: John Wiley and Sons. Goldberg, L.G. & Rai, A. (1996). The structure-performance relationship for European Banking. Journal of Banking and Finance, 20, 745-711. Hay, D.A. & Morris, D. J. (1991). Industrial Economics and Organization: Theory and Evidence 2nd edition. New York: Oxford University Press. Hicks, J.R. (1935). Annual survey of economic theory: The theory of monopoly. Econometrica, 3, January, 8. KPMG (2005). Banking Survey Report 2004 (http://www.kpmg.com.hk/en/virtual_library/Financial_services/Banking_survey_report04.pdf) Lambson, V.E. (1987). Is the concentration-profit correlation partly and artifact of lumpy technology? American Economic Review, 77, 731-733. Maudos, J. (1998). Market structure and performance in Spanish banking using a direct measure of efficiency. Applied Financial Economics, 8, (2), 191-201. Mendes, V. & Rebelo, J. (2003). Structure and performance in the Portuguese banking industry in the nineties. Portuguese Economics, 2, 53-68. Peltzman, S. (1977). The gains and losses from industrial concentration. Journal of Law and Economics, 20, 229-263. Punt, L.W. & Rooij, M.C.J. (1999). The Profit-Structure Relationship, Efficiency and Mergers in the European Banking Industry: An Empirical Assessment. Amsterdam: De Nederlandsche Bank NV Econometric Research and Special Studies Department. Shepherd, W.G. (1982). Economies of scale and monopoly profits. In Craven, J.V. (ed.) Industrial Organization, Antitrust, and Public Policy. Boston: Klumer Nijhoff. Waldman, D.E. & Jensen, E.J. (2001). Industrial Organization: Theory and Practice 2nd edition. Boston: Addison Wesley Longman, Inc. White, H. (1980). A heteroscedasticity-consistent covariance matrix estimator and a direct test for heteroscedasticity. Econometrica, 48, 817-838.

Euro Asia Journal of Management Issue 33, Vol. 17, No.1, June 2007, pp. 79-102 VALUES IN THE MARKETING OF NATIONAL PARKS IN CHINA: AN EXPLORATORY APPLICATION OF MEANS-END CHAIN THEORY CATHERINE SARLANDIE DE LA ROBERTIE1 and CHENG BAIFANG2 ABSTRACT The aim of this study is to draw out the principle values of Chinese visitors to national parks in China so as to improve the parks communication strategy to consumers.The literature clearly provides support and empirical evidence linking both culture and consumption: cultural values have been shown to be efficient, measurable sets of variables that are fewer, more centrally held and more closely relating to consumer behavior than demographic and psychographic measures. The data was obtained from the method of means-end chains theory and the Yau’s questionnaire of Chinese cultural values, which was distributed to a sample of 30 visitors to national parks in China. With the information obtained, and after the principal component analysis of the 67 chains collected, we found two principal chains that can explain national parks visitors’ expectations. After combining the values obtained by the method of means-end chains with the cultural values founded in the questionnaire, we propose some values that can be used in communication to increase the number of visits to Chinese national parks. 1 CREM – IGR, Universite de Rennes, 11, Rue Jean Mace, CS70803 35708 Rennes CEDEX 7, France. Email:catherine.sarlandie-de-la-robertie@univ-rennes1.fr 2 Center for Research in Economics and Management, University of Rennes 1, France. CREM-CNRS UMR C6211. Email: baifangcc@hotmail.com

Catherine Sarlandie de La Robertie and Cheng Baifang 80 INTRODUCTION Since China introduced the open-door policy in 1978, researchers as well as Western businessmen have been observing, and anticipating with keen interest, the vast opportunities associated with a billion potential consumers. Many articles have been published in journals at various levels of sophistication, which describe and analyze the current status of the market in China, its marketing and advertising policies (or their absence), and so on. A good deal of research on the Chinese consumer has focused on the fundamental differences between Chinese and Western cultures. Since the 80s, Chinese tourism has been a strong growth industry. In 1998, its income was 343.9 billion RMB (US$43 billion), or 4.32% of GDP. According to the estimates of the National Tourist Office, the income will reach 14 trillion RMB (US$1.7 trillion) by 2010. Behind that success, however, the qualitative degradation of sites and protection of tourist resources have emerged as two major concerns. Mass tourism increasingly carries negative influences. Especially in some sites famous for their natural and/or cultural heritage features, the conflict between tourist requirements and environmental concerns has drawn attention to the need for doctrinal change in Chinese tourism. Our study concentrates on the values of Chinese tourists in relation to the country’s National Parks. In this presentation, we do not discuss the concept of national park, or the management models applied in that context, because their rationale as well as actual uses vary from one country to another. The aim of our research is to try to locate and analyze the Chinese consumer’s basic values in order to improve communication between Chinese visitors and park managers. We first present China’s overarching system of values; then we will try to determine the central values on which communication can be based. For that purpose, we apply the method of means-end chains. We conclude by detailing the uses to which the values thus obtained can be put. REVIEW OF THE LITERATURE Chinese consumption patterns are varied because consumers now have access to products from throughout the world. Moreover, the country’s fast growth has generated dynamic mobilization and a burgeoning differentiation of the social structure (Walder, 1989; Nee & Matthews, 1996; Bian, 2002). While officially there are no social classes in China, many Chinese researchers define consumers by income, occupation and other such discriminating criteria. Yet, despite the increasingly stratified structure of Chinese society, a middle class, in the normal, ‘industrialized’ sense of the phrase, still has to emerge. To date, the Chinese middle class boasts neither stable

Values in the Marketing of National Parks in China 81 income, clear identity nor distinct system of values (Qin, 1999). Its members fail to evince the kind of political motivations which would ensure the development of a civil society. In a fast-changing situation, rather than on differentiating (demographic, occupational, etc.) variables, our best plan in approaching Chinese consumer patterns is to rely on stable factors which permit at least some degree of generalization. Patterns of culture offer variables of choice in that regard, as they are apt to help us identify some of the more general or basic reasons why Chinese consumers behave the way they do as a group, (Sarlandie de La Robertie, 2004). Consumers do not react separately, spontaneously or in a vacuum. They live in a social, political and cultural context. Their values are the expressive reflection of the culture. Hofstede (1991) defines values as the factors that form the core of a culture – its major manifestations. A value is the tendency to prefer a certain state of affairs to another. The values resulting from a culture are stable and durable variables of much analytical use when it comes to understanding and predicting consumer behaviour. Culture and the whole process of socialization make it possible for individuals to find their bearings and to structure their preferences. Thus, values and culture cannot be dissociated. The main benefit to be expected of a study of values is to illuminate the impact of culture on consumption, and more generally on the behavioural dynamics of the individual. It is necessary, first, to emphasize underlying personal values and their relationship with consumer expectations; then, to apply the knowledge thus gained to adjust and improve communication. The term ‘culture’, though widely used in the international literature on marketing and consumer behaviour, is usually defined only very vaguely (Hofstede, 1991; Jeannet & Hennessey, 1988; Keegan, 1989; McCracken, 1988; Rohnert, 1984). In general, this term refers to one or more of the following elements: • Meanings, attitudes, values and beliefs shared by a group of people; • Modes of reaction to stimuli and other forms of behaviour common to that group; • Symbols and rites used to express shared meanings and values, which guide behaviour and reactions to stimuli; • The ways in which mental constructions and associated social institutions such as religion, the family, education system, etc., influence widely shared behaviour. Culture still answers to E.B. Tylor’s classic definition as ‘[a] complex whole which includes knowledge, belief, art, morals, law, custom and any other capabilities and habits acquired by man as a member of society’ (Tylor, 1871 in Hofstede, 1980). It is ‘collective mental programming’ which will result in visible manifestations, notably in habitual or ritualized behaviour. These cultural elements are shared by majorities within the group or society ; they are learned – passed on to individuals by means of many institutions (family, school, law, media, etc); they evolve over time, under the pressure of individual or group innovation as well as of external influences. In marketing studies, culture is always a contextual factor. It can be presumed to be present and influential in all aspects of behaviour, personality and social norms. The relationship between culture and consumer behaviour is a close one, because consuming is a cultural act. Donnel et al. (2000) show that culture influences the cognitive process of the consumer when he

Catherine Sarlandie de La Robertie and Cheng Baifang 82 or she makes a decision. At least partly, it governs the choice of product and brand selection criteria. The impact of culture on consumption, however, is not direct. It is just as difficult to establish a link between the two as between personality and consumer behaviour : those links are said to be ‘mediative’. In other words, culture acts on ‘intermediate variables’ such as the distribution of consumer roles within the family, or the process of product evaluation. Consumer goods convey an attachment to cultural values. They are a bridge which individuals maintain with their cultural environment. Buying them allows social expression of the specific impact of the culture to which the buyer was exposed, and the values to which he or she adheres. On the other hand, culture is not a system of abstract values that exists independently of the individuals. Culture is a complex set of interrelated elements, explicit or implicit, transmitted and learned, often unconscious, of which values form part. A value is ‘an enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable to an opposite or inverse mode of conduct or end-state of existence’ (Rokeach, 1973). Moreover, values are organized into a system based on a ‘continuum of relative importance’. A value does not exist on its own; it acquires meaning and force only as part of a hierarchy of values in which it is classified and ranked. Values reflect the essential characteristics of a culture (Hofstede, 2001), of which some constitute the fundamental part (Ballinger & Hofstede, 1987). Culture has various functions: pragmatic (it provides scripts to guide behaviour) and adaptive (it facilitates adjustment to the environment), it secures identity, and synchronization of behaviours (Usunier, 2000). Values, in particular, structure beliefs, attitudes and provide individuals with a set of solutions to the problems they encounter (Terpstra & David, 1985; Rice, 1993; Hofstede, 2001). More general than motivations, values are also more stable and more structuring than attitudes because they are less plastic. However, values must be distinguished from socio-cultural standards. The latter are very prescriptive. They determine a general framework and an operational code which make it possible for the individuals to live together within the same society. The two principal characteristics of cultural values are their long-term stability and adaptiveness. Stability implies that the current cultural values of a society are strongly related to, and dependent on, its traditional values. At the same time, only rarely does a culture entirely fail to be exposed to foreign influences and to adapt to them. To understand the current Chinese culture and values, it proves essential to study a millennia-old traditional Chinese culture which continues to impregnate contemporary Chinese culture. Because of such remarkable continuity – a fusion of tradition and reality bearing on both the present and the future –, (Sarlandie de La Robertie, 2004, 2006), special stress in this research will be laid on traditional Chinese culture. Another major characteristic of cultural values is to influence human behaviour (Tybout & Artz, 1994). Chinese and Western consumers have widely different cultural characteristics. Over four decades ago, Kluckhohn and Strodtbeck (1961) developed a structure of value orientations (K&S structure) to describe the originality of Chinese culture. That structure was subsequently used by Yau (1988) to study Chinese cultural values in the context of marketing. Moreover, Bond and his Hong Kong colleagues have developed a trans-cultural research programme based on Hofstede’s method. In the 80s, Yang (1986) looked further into the profile of Taiwanese values in the context of modernization, and drew up a list of the changes recorded in the value

Values in the Marketing of National Parks in China 83 system (see table 1). TABLE 1 The impact of societal modernization on Chinese personality Decreasing Increasing preference for inner development preference for achievement (activity) preference for collectivistic (lineal) relationship preference for individualistic relationship preference for social restraint and self-control preference for self-indulgence and the sensuous enjoyment theoretical value social value religious value aesthetic value external-control beliefs internal-control beliefs authoritarian attitudes democratic attitudes Source: Yang (1986) Yau (1994) offered a model of Chinese consumer satisfaction/dissatisfaction, in which values are the important independent variables affecting expectations in relation to the product, purchase intent, and satisfaction. It is a typology of 12 values, organized into five dimensions: man and nature, introspection, relationships, time, and personal activity. The first dimension includes values relating to harmony with nature. The Chinese think that man is part of nature, which he can neither exceed nor control. He can only adapt to it in order to arrive at a harmonious state. In this dimension, there is also a value called Yuan (缘), which affirms the predestined relation between man and the universe. This value implies that people must rely on themselves and cease complaining in difficult circumstances, because everything is predetermined and foreordained. The second dimension includes the value of humility, in which modesty is essential. It is necessary to avoid saying no to others and to be as flexible as current circumstance requires. The relational dimension refers to values like respect for authority, face, dependability, and group orientation. Yang (1981) defines the social orientation as ‘a predisposition towards modes of conduct like social conformity, the use of non-offensive strategies, concern for the expectations of others, and the value granted to external opinions, with the aim of achieving one or more goals. These objectives can be obtaining rewards, the maintenance of harmony, control over feelings, the will to save face, social acceptance. It can be a question of avoiding punishment, embarrassment, conflict, rejection, ridicule, and reprisals in a given social situation. Basically, that represents the tendency of a person to act in agreement with external expectations or social standards, rather than according to interior wishes or personal integrity concerns, so that he or she is in a position to protect their 'public ego' and social functions, as an integral part of the social network’. The time dimension betrays the strong significance the Chinese attach to tradition, and the pride they take in their long history.

Catherine Sarlandie de La Robertie and Cheng Baifang 84 Continuity is very important for them. In the personal activity dimension, they keep Zhong-Yong (中庸), that is, avoid conflict and seek harmony with others, notably with the family circle. The latter plays the part of the single stable element on which an individual can count, for better and worse. Social harmony, propriety and moderation, avoidance of negative sanctions, such are the dominant values which express the two main cultural bases, humanism and the family circle, of Chinese society. Yau proposed a questionnaire containing 45 proverbs to describe these five dimensions of Chinese cultural values. These values – not least harmony (和谐 Hexie), both social and between man and nature, a central concept in Chinese culture – will be used in our research in order to account for culture-specific Chinese consumer behaviour. THE METHOD OF MEANS-END CHAINS Although the most cited source with respect to means-end chains analysis (Gutman, 1984) dates back to the early 80s, most of the conceptual and methodological bases of the theory had been laid somewhat earlier in a very short article (Young & Feigin, 1975) on the ‘latent (or grey) benefit chain’. The means-end model is accompanied by a protocol of data collection, laddering (Reynolds & Gutman, 1988), a procedure consisting in open-ended interviews during which consumers, starting from a given product or brand, will formulate a chain of benefits connecting an attribute of the product or service to a value. Setting the model somewhat apart, the means-end chain follows an ascending process: attributes → consequences → values. This artefact is essential because asking individuals to ascertain which values influence the choice of a brand or product often fails to elicit clear or satisfactory answers. Olson and Reynolds (1983) made a finer distinction by subdividing the preceding elements into two intermediate levels. This refinement led to a more distinctly hierarchical chain: concrete attributes → abstract attributes → functional consequences → psychosocial consequences → instrumental values → terminal values. It is important to emphasize that not all of these six elements are necessarily present in the chains evoked by the consumers. With regard to the concrete attributes, they are specific elements of evaluation, which make it possible to describe a product: for example, its name, price, and place of purchase. The abstract attributes are more subjective elements of evaluation left to the personal appreciation of each individual (Valette-Florence, 1993). For example, the fragrance of a perfume brand is an abstract attribute since it is usually expressed through metaphors (heavy/ light, flowery, musky...) not necessarily closely related to the material ingredients that go into it. Aurifeille (1992) proposed widening the distinction between abstract and concrete attributes on the basis of their homogeneous or composite character. ‘Concrete attributes coincide with the express (physical, objective, intrinsic) characteristics of the goods considered; abstract attributes correspond to those same characteristics plus symbolic systems, often the result of a complex association of concrete attributes’. Contrary to attributes, consequences, as a concept in this sense, derive from research

Values in the Marketing of National Parks in China 85 specifically focused on means-end chains. They arise from the use of a product, and can be divided into two levels, functional and psychosocial. According to Gutman (1984), ‘functional consequences result from the direct consumption of the product. Psychosocial consequences result from the functional consequences’. This definition does not integrate an important distinction of means-end theory: namely, that the functional consequences relate to the product whereas the psychosocial consequences concern the individual. For lack of such a distinction, there is a risk that psychosocial consequences and abstract attributes will be mixed up. Valette-Florence (1993) clarified the two definitions in the following way: ‘the functional consequences derive directly from the use which will be made of the product considered. For example, a perfume makes it possible to feel clean, to enjoy a pleasant smell. On the other hand, psychosocial consequences are produced by functional consequences and make it possible to secure desirable social goods like, for instance, a sophisticated public image or a higher personal status’. In other words, the psychosocial consequences are much more closely connected to the imprint of socio-cultural norms or standards prevalent in a given environment. Finally on the level of values, in a refinement of the concept of hierarchy, Rokeach (1973) distinguishes between two types of values: instrumental (ways of being or of acting, like courage and honesty) and terminal (life goals, that is, individual or social objectives like peace or freedom). Festinger’s (1957) cognitive dissonance theory suggests that once a person has made a choice, the chooser mobilizes justifications to legitimate his or her option. Moreover, taking into account the fact that society and the various institutions which make it up impose on individuals the acceptance of community values, it is possible to consider that social and individual values meet. Thus, Rokeach’s contribution, by allowing buyers or viewers freedom of choice in the formulation, conscious or otherwise, of what is desired or desirable, makes it possible to secure an overall picture that is more closely representative of both individual and social values. The concept of value, complete with the distinction affecting attributes, was the subject of many academic developments which went far to limit the risks of confusion between the means-end levels. It should however be noted that nothing, in the initial process of determining means-ends chains, points to any need to restrict the choice of values to pre-established lists such as those offered by Kahle (1983) or Rokeach (1973). This is why in our research on Chinese consumers, we use Chinese traditional values, which better characterize their behaviour. Overall, the means-end chain can be defined as ‘the result of connecting the attributes of a product, the consequences which the consumer draws, and possible links to his or her personal values’ (Valette-Florence, 1993). Or more clearly, as ‘a semantic chain of increasing abstraction which starts with an attribute, ends with a value, and proceeds by way of any intermediate expectation’. According to Valette-Florence’s apt summary, there are two levels of analysis which give rise to two research orientations in the means-end literature: 1 As regards data collection, a choice is offered among (a) laddering, the method originally suggested by Reynolds and Gutman (1988), (b) the method of written protocols contributed by Walker and Olson (1991), (c) the charts recommended by Valette-Florence & Rapacchi (1991), and (d) the Association Pattern Technique (APT) put forward by Ter Hofstede et al. (1998).

Catherine Sarlandie de La Robertie and Cheng Baifang 86 2 When it comes to data analysis, four main approaches are on offer: hierarchical construction of the charts (in fact, of the aggregate representations of the chains as a whole, as evoked by the consumers; the method of virtual chains, which consists in applying a forced typology of the chains; the methods of latent chains, whose ambition it is to put in perspective cognitive chaining analysis within the usual framework of consumer behaviour theory: values → consequences → attributes, a sequence which in fact is reversed compared to the mode of data collection presented above; finally, the linear mixture model based on a multivariate regression to test the independence of relations between attributes and consequences on the one hand, consequences and values on the other. These last two approaches are still at an early stage of development. EXPERIMENTATION AND FINDINGS Data Collection The subjects targeted by the study were 30 Chinese students3 of the University of Rennes, including 15 men and 15 women. Their ages ranged between 20 and 30. Each was a volunteer and agreed to spend one hour or one hour-and-a-half being interviewed individually. The interviews were conducted in Chinese, their mother tongue. There were three parts in the interview schedule. First, a period of about 30 to 45 minutes was devoted to the application of the means-end chains method, trying to ascertain the ‘attributes → consequences → values’ chain. In the second part, Yau’s questionnaire, based on 45 Chinese proverbs, was administered in order to bring out their cultural values. To conclude, a third period of approximately 20 minutes’ duration was set apart for answers to the two principal questions : 1) What do you expect from a national park? 2) What do you think about the ‘protection of natural resources’ ? We noted each response in detail. During the interview, we also paid a lot of attention to gestures, such as facial expressions, which were used to determine how best to pursue the interview and to assess the reliability of answers. 3 It is generally allowed in the means-end literature that the appropriate size of a sample lies somewhere between 30 and 50 individuals. In the exploratory phase, we chose the lower end of that bracket because the process of familiarization with the means-end chains model hardly required us to go beyond that figure.

Values in the Marketing of National Parks in China 87 TABLE 2 Distribution of the various levels with their corresponding codes for visit to national park VT1 : feeling of achievement (27) VT2 : harmonious life (28) VT3 : self-fulfilment (29) VT4 : self-control (30) VT5 : independence and autonomy (31) Terminal values VT6 : reflectiveness and intelligent (32) VI1 : sense of belonging (21) VI2 : importance of the family (22) VI3 : true friendly relations (23) VI4 : wisdom (24) VI5 : self-esteem (25) Instrumental values VI6 : health (26) CP1 : relief (17) CP2 : optimistism (18) CP3 : curiosity (19) Psychosocial consequences CP4 : self-confidence (20) CF1 : visit with the family (9) CF2 : visit with the friends (10) CF3 : communicate with the friends (11) CF4 : acquire new experiment (12) CF5 : evade stresses and daily troubles (13) CF6 : seek harmony (14) CF7 : make new friends (15) Functional consequences CF8 : exercise (16) AA1 : good name (5) AA2 : uniqueness (6) AA3 : beauty of nature (7) Abstract attributes AA4 : novelty (8) AC1 : landscape (1) AC2 : climate (2) AC3 : fresh air (3) Concrete attributes AC4 : cultural heritage (4) In the application of the means-end chains method, the interview protocol detailed by Reynolds and Gutman (1988) was carefully followed. We did not use pre-established lists of attributes → consequences → values sequences, because we wanted to allow our subjects free choice. This is a process which consists in analyzing memories. During the interviews, in order to help the subjects complete their cognitive chains, we sometimes used the anchoring

Catherine Sarlandie de La Robertie and Cheng Baifang 88 procedure4. At the end of the interview, we also asked the respondent to confirm his or her chains. The list of items obtained is presented in table 2. Altogether, 67 chains were collected, which corresponds to an average of 2.23 scales per interview. Let us recall that, put simply the final object of this qualitative phase was to discover the various relationships that may exist between attributes, consequences and values5. Various recurring associations of that type form a hierarchical chart which can then be assumed to be representative of national park visitors’ cognitive structures as a whole. We started by putting the question ‘have you already visited a national park?’, and then asked respondents to describe the attributes of the national park visited. In the list of answers obtained, the most important attribute was indicated. We then sought to ascertain the consequences of that attribute. There are sometimes several functional or psychosocial consequences. In such a case, it was necessary to choose the most important consequence, then the second most important. We sometimes had to return to the stage of attribute choice. When we found the consequences, we moved on to the determination of the important values. Once the interviewer estimated that answers highlighted a first cognitive chain, he then required the subject to reconsider the other important attributes that he judged interesting in his visit. Then we started the process over again, and again, until the respondent could not take the formulation of his or her cognitive chain any further. Upon completion of the interview, we proposed a questionnaire on Chinese cultural values in order to highlight and put in perspective the values mentioned by the respondent. It should be underlined that all of the 30 subjects had at least once visited a Chinese national park. Their proposals for attributes illuminate the phenomena surrounding such visits, and are usable in other research. Analysis Data analysis of the means-end chains We initially drew on graph theory (Valette-Florence & Rapacchi, 1989) to build a hierarchy. This is a complete step which makes it possible to directly connect all attributes to all of the consequences. Then, in a second stage, the latter to the values on which those are dependent. The approach consists of identifying the relationships between the various concepts, that is to say, the arcs of the network, and highlighting only those which are most important - not all the knots in the corresponding conceptual network need to be connected. In fact, the most significant cognitive chains, in our case, are those that are most representative of visitor activity. Accordingly, the longer the chains, the better the comprehension of the consumer’s cognitive process. These chains contain the arcs carrying a 4 Anchoring is a procedure making it possible for the guarantor to correct errors of relevance by outlining items during the formulation of the chain. 5 Again, the theory of means-end chains is founded on a simple postulate that the consumers have values which they wish to honour in their consumption patterns. To do so, certain conditions or consequences are essential. These consequences arise from the characteristics of the products called attributes. To facilitate the task of the interviewed person, one will start with the attributes, then the consequences and then the values.

Values in the Marketing of National Parks in China 89 maximum weight between two elements. For example, in figure 1, there is a network of 5 knots (AC1, AA3, CF5, CP1, VT1). Indeed, the arc with maximum weight6 between AC1 and VT1 is arc (AC1 → AA3 → CF5 → CP1 → VT1) since it has a weight of 34, higher than that of arc (AC1 → AA3 → CP1 → VT1) which does not exceed 25. However, such reasoning would result in not retaining arc (AA3 → CP1) though it has a weight of 6. On the other hand, by excluding weights below a certain threshold7, for example a threshold of 5, arc (AC1 → AA3 → CF5 → CP1 → VT1) has to be rejected, whereas arc (AC1 → AA3 → CP1 → VT1) is retained. Obviously, in the construction of cognitive chains by the method based on graph theory, we must simultaneously consider the arcs with the most important weights, and retain for their incorporation in the corresponding chain only the arcs higher than a given threshold. It is to be noted that this process can be regarded as acyclic, in the sense that arcs go one way only (from attribute to consequence(s) to one or more values), and reversals are precluded. Concretely, we ended up allowing the incorporation of any arc in the final chain (that is to say a threshold of 1). Figure 2 provides a hierarchical chart of the cognitive chains. 6 The weight of the arc is defined as the number of direct relations between these two knots. 7 Minimum weight is defined by the researcher according to cases.

Catherine Sarlandie de La Robertie and Cheng Baifang 90

Values in the Marketing of National Parks in China 91 The reading of this illustration indicates that two principal types of chains emerge. Each corresponds to specific orientations: • The first, of the type ‘landscape → natural beauty → forget stress and boredom → feeling of achievement’, betrays a ‘useful escape’ function. In this orientation, visitors admire the beautiful landscapes, are immersed in the beauty of nature and are induced to forget the stresses due to studying (recall that our interviewees all are students) and daily routines. This consequence enables them to make a successful university life. The same applies to future employment and work life: the persons interviewed often underline that success in their studies makes it likely that they will succeed in their careers. The feeling of achievement also functions as a stimulating factor. • The second, marked by a ‘new experience’ function, proceeds thus: ‘cultural heritage → specificity → new experience as asset → curiosity → wisdom → self-actualization’. In China, the majority of national parks have unique features because there is always a cultural patrimony feature attached to these sites. Theoretically each visit is also an occasion for visitors to acquire new knowledge of fauna, florae, etc. All of this refers to wisdom as a means to self-actualization (defined as broadened horizons). Concretely, the case arises that a chain with substantial weight in our study, reading ‘beauty of nature → visit with friends → communication → true friendly relations → feeling of achievement’, refers to a ‘relational’ function. The people interviewed preferred to visit the site with their friends as it was an occasion to communicate with them. Confirmed friendships are seen as a precious asset because the assistance of friends is a factor of success. Moreover, the fact that friendship is associated with achievement consolidates Kahle’s (1983) assumption to the effect that the importance attached to friendship often reflects desire for personal success. Technically, the method applied was a principal component analysis of the material collected during the interviews. We transformed the data corresponding to the ‘attributes → consequences→ values’ chains into sequences of 1 or 0 digits according to whether the items were present or not. The software used for this analysis was SPSS. The analysis being multidimensional, several factorial axes are highlighted. In our study, we thus obtained seven axes accounting for 61.5% of the variances. The two principal factors are shown in table 3.

Catherine Sarlandie de La Robertie and Cheng Baifang 92 TABLE 3 Factor analysis of cognitive chains elements Factor 1 (var. = 4,68) Factors 2 (var. = 3,44) Importance of the family Communication with friends Visits with friends Climate Accomplishment 0,877 0,794 0,751 0,546 0,451 Visit with the family True friendly relations Sense of belonging 0,898 0,810 0,640 λ² = 163,03 ddl. = 31 signification = 0,00 Collection and analysis of data on Chinese cultural values As mentioned earlier, in order to better make sense of these elements, we collected information on cultural values by using Yau’s (1994) questionnaire, which includes 45 proverbs often referred to in China (see appendix). The original questionnaire being in English, we did two translations (English into Chinese and back), so as to check that nothing had been lost or altered in the process – for which two Chinese and two English translators were employed. Likert’s six-point scale was used, with 1 referring to ‘complete disagreement’, and 6 to ‘complete agreement ‘. All of the 30 subjects answered each of the 45 items. For example, we asked the subjects to indicate their degree of agreement or disagreement with the following judgement: ‘A family will be prosperous if it is in harmony’. SPSS indicated a coefficient alpha value of 0.76. The scale can be held to be reliable. Its internal validity, tested by Pearson’s correlation, shows no item above the 0.01 level. Likewise, T-testing for all items shows no item above 5, which means an alpha level of 0.01. Our scale is thus both reliable and valid. Finally, the principal component analysis produced 13 factors, accounting for 84% of the variances. We retained only the first three factors. The factors are presented in table 4.

Values in the Marketing of National Parks in China 93 TABLE 4 Factor analysis of Chinese culture values N° correlations values Factor Factor 1: harmonize with people (var. = 12,018) 42 0,54 No matter what you are doing, don’t go too far 33 0,48 I won’t offend others unless offended 31 0,48 Shameful family affaires should not be spoken of outside 44 0,45 Help each other whenever in need 1 0,41 A family will be prosperous if it lives in harmony 17 0,41 Forgive others whenever you can Factor 2: situational dependences (var. = 9,820) 21 0,73 Talk to people in their own language 18 0,50 At a different time and in a different place, we will meet again 13 0,42 When in Rome, do as the Romans do 16 0,41 A family has its rules as a state has its laws Factor 3: universal harmony (var. = 7,977) 11 0,64 He who submits to Heaven shall live; he who rebels against Heaven shall perish 12 0,52 Do all that is humanly possible and leave the rest to the will of providence 15 0,47 Life and death are fated; wealth and honors hinge on the will of providence 28 0,42 Man can communicate with Nature and exist in harmony Presentation and Discussion of Results Presentation of the findings The two types of values resulting from the means-end chains and analysis of Chinese traditional values are shown (see table 5). This makes it possible to interpret personal values in the cognitive chains collected. They are influenced by cultural values. As discussed earlier, it is essential to distinguish between personal and cultural values. It is also necessary to refrain from simply equating, as indeed some researchers have done, terminal values with the values of Chinese traditional culture. Trying to think through the relationship between the two value levels, what we propose is more radical.

Catherine Sarlandie de La Robertie and Cheng Baifang 94 TABLE 5 List of the values obtained according to type Values obtained Feeling of achievement Harmonious life Self-fulfilment Self-control Independence and autonomy Reflectiveness and intellect Sense of belonging Importance of the family True friendly relations Wisdom Self-esteem Model means-end chains Health Harmony with people Situational dependences Universal harmony Self-control Independence Endurance Group orientation Filial devotion Bao Be positive Face Respect for experience Analysis of Chinese traditional values Sincerity The Chinese value harmony, can be internal (a mix of physical health and psychological balance) as well as external (relations with others, with objects and nature). They seek independence and autonomy within the bounds of their in-group’s orientations. The family is always at the centre of Chinese society. Achievement is important because it conditions future social status, and a useful role in society. Friendship is emphasized mainly as a source of potential support and help. Families and friends often decide what is to be done, and (as the analysis of the cognitive chains shows) are regarded as essential resources to succeed in life. Many of our interviewees stress that success is the goal, but that the process is more important than the goal. On the other hand, as the need for independence and autonomy increases, the importance the Chinese attach to self-control increases correspondingly. In the third part of our interviews, we emphasized considerations on national parks, tourists and their attitudes towards conservation of natural resources. Among our interviewees,

Values in the Marketing of National Parks in China 95 the number one expectation when visiting a national park relates to beautiful landscapes. They do not pay as much attention to the cultural heritage content associated with each site. In fact, one of the principal functions of national parks, as they see it, should be to educate the tourists on how to better protect nature – a topic on which they confess to a strong knowledge deficit. A typical statement in that regard runs thus: ‘I know very well what to think about environmental issues. It is as if somebody had made dirty their house: when all is said and done, it is for them to clean it. For the moment, everyone speaks about the environment, but nobody is really doing anything. Tell me, what do you think we can do?’ Other research contributions bear out such a similar finding. For instance, Chan (2001) also sees a very strong 'man-nature' orientation as well as a difference to be remedied between past or present behaviour and a positive attitude towards ecology. In short, the Chinese visitor needs the national park to fully relax, share moments of joy with family and friends, find harmony with nature, and gain specific knowledge about it. From the values highlighted in this research, it is possible to derive conclusions that are policy-relevant for managers anxious to improve the attractiveness of national parks and communication with their visitors and in brief, to refashion the public image of Chinese national parks, and change the terms of ‘dialogue’ with the tourists. A Chinese saying may be in order here: in life, it is necessary for us ‘to read ten thousand books and to travel ten thousand kilometres’ (读万卷书，行万里路，Du wan juan shu, xing wan li lu). Discussion Our methodology mainly articulates two successive, complementary phases: an analysis of cognitive chains applying graph theory, followed by a description of the various corresponding targets by means of a principal component analysis. Concerning the graph theory analysis, our method made it possible primarily to highlight two principal functions that are related respectively to (a) visits to natural spaces and (b) ventures at something new or different. Up to this point, findings are presented in linear fashion. But we can also present them vertically, based on the ‘attributes → consequences → values’ chain. The complementary use of principal component analysis makes it possible to mobilize quantitative information that the initial analysis did not, and enables us to delineate groups of individuals showing similar cognitive characteristics in terms of means-end chains. The additional questionnaire throws into relief personal values strongly connected with the values of traditional Chinese culture. Though we did not direct particular attention to Taoism, (Sarlandie de La Robertie, 2006), one of the guiding principles of which is the search for a long life, in harmony with nature, our overall approach enables us to perceive major expectations on the part of Chinese consumers with respect to national parks. Interpretation of personal values is distinctly enhanced when reference is made to Chinese cultural values. The values resulting from the means-ends chains (or cognitive chaining) model cannot be considered to be the final word. It is difficult to reconcile individual relevance and collective coherence, insofar as any gain in the precision of the data collected on individual processes comes at the expense of our capacity to generalize these processes on the level of groups. The values produced by applying the model find a use as communication guidelines.

Catherine Sarlandie de La Robertie and Cheng Baifang 96 It should be also remembered that values have three components: cognitive, emotional and behavioural. The means-end chains model only seeks to ascertain the influence of personal values on the cognitive process. In their communication strategy, the national parks can stress ‘a place for natural and social harmony’. Based on their two essential roles, ecological and educational, the definition of services offered by Chinese national parks can thus be adjusted to the needs and expectations of their potential public. Marketing practice, as far as they are concerned, should not limit itself to mediation between supply and demand through distribution, communication or even pricing, but must also consider proceeding in terms of a ‘product policy’. Included in that concept, too, is the supplementary function of providing visitors with a positive experience through a whole range of services. Natural sites no longer confine their role to conserving natural resources. Like any method, the analysis of means-end chains is not free from inherent limits. Its implementation suffers in particular from the ponderous and sometimes artificial character that chains data collection is apt to assume. Moreover, it is necessary to deal with a significant number of subjects for the purpose of cross-checking the chains solutions derived from analysis with more objective socio-demographic criteria. This makes it possible to identify and characterize the chains with sufficient correctness for them to make sense. Nevertheless, this approach has a lot to recommend it, for it combines the advantages of nuanced qualitative interviews and those of quantitative methods allowing statistical treatment of hard data. It makes it possible to establish a direct link between the attributes of a given product and the values brought into play by the act of consuming it. CONCLUDING REMARKS National parks have official missions that vary according to the country where they are located. In France, for example, biological protection is the top priority, neatly expressed by Art. L.331-1 of the Environment Code: [An area legally qualifies as a national park] ‘...when special importance attaches to the preservation of the local fauna, plant life, surface and sub-surface layers of dry land, atmosphere, water, or in more general terms, of natural resources [against] possible degradation, from natural or man-made sources, such that their appearance, make-up and natural change processes may be negatively affected’. Park communication emphasizes the biological specificity of each site. In Canada, where national parks combine natural conservation with elements of the national historical patrimony, visitors seek an experience. In China, before the emergence of the ‘national park’ label, there were ‘national picturesque sites’ (国家风景名胜区，Guojia fengjing mingsheng qu), the highest level in the hierarchy of natural and cultural patrimony reserves. The Chinese government defines a national picturesque site as a space to be admired by the people for its natural, cultural and scientific assets. On such a site, landscape, fauna, florae blend harmoniously with culture. All natural resources on it are strictly protected by the state.

Values in the Marketing of National Parks in China 97 In 1994, the Ministry of Construction, the principal management hub for national sites, designated 177 ‘Chinese national parks’. Since then, their status has been raised. They are now supposed to represent the quintessence of the Chinese spirit. In 2006, the Council of State Businesses decided that the second Saturday in June will henceforth be known as ‘Heritage Day’. Chinese national parks are classified according to their principal landscape feature. One thus distinguishes seven categories of national famous sites (Peng, 2006): mountains (名山，mingshan), water streams (名水，mingshui), lakes (名湖，minghu), lava caves (名洞，mingdong), littoral zones (海滨名景，haibin mingjing), picturesque cities (风景名城，fengjing mingcheng), historic sites (文化名胜，wenhua mingsheng). In their communication strategy, the national parks can firstly underline ‘a place for harmony, natural and social’, because in Chinese culture man is part of nature. Human activities thus enjoy pride of place in the Chinese national parks – a major difference from other countries. In addition, park management can emphasize this or that value according to its principal feature. For instance, mountains are the cultural symbol for the spirit of life, the vital force of nature. Remarkably, mountain sites are crowded by visitors. For that kind of site, achievement, wisdom, friendship and positive feelings all figure prominently among the values referred to. For sites like picturesque cities, in which civil society and the beauty of landscapes co-exist, universal harmony is essential. Also, on the sites where water is the dominant feature, autonomy and self-actualization can be stressed, just as can group orientations where lava caves are the main asset. As for the historic sites, deferential regard for experience, reflectiveness and intelligence are of primary importance. Moreover, parks with the capacity to accommodate large numbers ought to encourage visits by whole families and groups of friends. Finally, recent changes in the value system have produced a new sense of 'self' (though of course the Chinese ‘self’ is very different from its Western counterpart). In our research, all interviewees mentioned its importance. The marketing of the national park must take that new trend into account. Increasingly environment-conscious tourists do not only seek a break with everyday life. They expect the national park they are visiting to minimize degradation of natural resources, as well as to maximize services based on their values. Combining environmental concerns, heritage conservation, scientific and tourist development, park activity becomes multipurpose, hence complex, and creates a requirement for professionalized personnel (not least for guides who master relevant knowledge on fauna, florae, geology and history). In marketing strategies, plural values must now be factored in: nature and health, harmony, thirst for knowledge and new experience. In short, the managers of Chinese national parks are in a situation not unlike that of the conductor of an orchestra. Hopefully, the findings of the present research, and similar efforts, will enable them to better communicate with Chinese tourists, and help them meet expectations in the accomplishment of their missions.

Catherine Sarlandie de La Robertie and Cheng Baifang 98 REFERENCES Aurifeille, J.M. (1992). Les chaînes moyens-fins : concepts, méthodes et champs d’application. Mémoire pour l’Habilitation à Diriger des Recherches, I.A.E. Poitiers. Ballinger, D. & Hofstede, G.. (1987). Les Différences Culturelles dans le Management. Paris : Les Editions d’Organisation. Bian, Y. (2002). Chinese social stratification and social mobility. Annual Reviews Social, 28, 91-116. Chan, R.Y.K. (2001). Determinants of Chinese consumers’ green purchase behaviour. Psychology and Marketing, 18, (4), 389-431. Donnel, A.B., Michael, W.M. & Itamar, S. (2000). Reasons as carries of culture: Dynamic versus dispositional models of cultural influence on decision making. Journal of Consumer Research, 27, 157-178. Festinger, L. (1957). A Theory of Cognitive Dissonance. Stanford, CA: Stanford University Press. Gutman, J. (1984). Analyzing consumer orientations toward beverages through means-end chain analysis. Psychology and Marketing, 1, 23-43. Hofstede, G.. (1980), Culture’s Consequences: International Differences in Work-Related Values. Thousand Oaks, CA: Sage Publications. Hofstede, G.. (1991). Cultures and Organizations: Software of the Mind. London: McGraw-Hill International. Hofstede, G.. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions Across Nations. Thousand Oaks, CA: Sage Publications. Jeannet, J.P. & Hennessey, H.D. (1988). International Marketing Management. Boston, MA: Houghton Mifflin. Kahle, L.R. (1983). Social Values and Social Change: Adaptation to Life in American. New York: Praeger. Keegan, W.J. (1989). Global Marketing Management. Englewood Cliffs, NJ: Prentice Hall. Kluckhohn, F.R. & Strodtbeck, F.L. (1961). Variations in Value Orientation. Evanstion, IL: Row, Peterson & Co. McCracken, G.. (1988). Culture and Consumption: New Approaches to the Symbolic Character of Consumer Goods and Activities. Bloomington, IN: Indiana University Press. Nee, V. & Matthews, R. (1996). Market transition and societal transformation in reforming state socialism. Annual Review of Sociology, 22, 401-436. Olson, J.C. & Reynolds, T.J. (1983). Understanding consumers’ cognitive structures: Implications for advertising strategy. In Percy, L. & Woodside, A. (eds.) Advertising and Consumer Psychology, Volume I. Lexington, MA: Lexington Books. Peng, L. (2006). 177 national parks of China (in Chinese). National Park of China, 1. Qin Y. (1999). China’s Middle Classes: Future Trends of Social Structure (in Chinese). Beijing: China Planning Press. Reynolds, T.J. & Gutman, J. (1988). Laddering theory, method, analysis, and interpretation. Journal of Advertising Research, 28, (1),11-31. Rice, C. (1993). Consumer Behavior: Behavioral Aspects of Marketing. Oxford: Butterworth Heinemann. Rohnert, P.R. (1984). Toward a conception of culture in cross-cultural psychology. Journal of Cross-Cultural Psychology, 15, 111-138. Rokeach, M. (1973). The Nature of Human Values. New York: The Free Press. Sarlandie de La Robertie, C. (2004). Intercultural aspects: Chinese consumer behaviour (in Russian). Politics and Business in the Changing World, Fourth International Conference Proceedings. Obninsk, Russia. Sarlandie de La Robertie, C. (2006). China: About the bond between management and cultural patterns – system of values’ influence on managerial practices (in Russian). Politics and Business in the Changing World, Fifth International Conference Proceedings. Obninsk, Russia. Ter Hofstede, F., Audenaert, A., Steenkamp, J-B.E.M. & Wedel, M. (1998). An investigation into the pattern techniques as a quantitative approach to measuring means-end chains. International Journal of Research in Marketing, 15, 37-50. Terpstra, V. & David, K. (1985). The Cultural Environment of International Business. Cincinnati, OH: South-Western. Tybout, A.M. & Artz, N. (1994). Consumer psychology. Annual Review of Psychology, 45, 131-169. Tylor, E.B. (1924). Primitive Culture. Gloucester, MA: Smith (1871). Usunier, J.C. (2000). Marketing Across Culture, 3rd edition. London: Financial Times/Prentice Hall. Valette-Florence, P. (1993). Introduction à l’analyse des chaînages cognitifs. Recherche et Application en Marketing, 8,

Values in the Marketing of National Parks in China 99 (4), 93-117. Valette-Florence, P. & Rapacchi, B. (1991). A cross-cultural means-end chain analysis of perfume purchases. Proceedings of the Third Symposium on Cross Cultural Consumer Behavior and Business Studies, Hawaii. Walder, A.G. (1989). China social change in post-revolution china. Annual Review of Sociology, 15, 405- 424. Walker, B.A. & Olson, J.C. (1991). Means-end chains: Connecting products with self. Journal of Business Research, 22, 111-118. Yang, K.S. (1981). Social orientation and individual modernity among Chinese students in Taiwan. Journal of Social Psychology, 113, 159-170. Yang, K.S. (1986). Chinese personality and its change. In Bond, M.H. (ed.) The Psychology of the Chinese People. New York: Oxford University Press. Yau, O.H.M. (1988). Chinese cultural values: Their dimensions and marketing implications. European Journal of Marketing, 22, 44- 57. Yau, O.H.M. (1994). Consumer Behavior in China: Customer Satisfaction and Cultural Values. London: Routledge. Young, S. & Feigin, B. (1975). Using the benefit chain for improved strategy formulation. Journal of Marketing, 39,72-74. APPENDIX: INTERVIEW QUESTIONS THE INTERVIEW QUESTIONNAIRES Chinese Cultural Values Here are some common saying which are in everyday use. I would like you to think about how much you agree or disagree with them. There is no right or wrong answer to these common sayings. You will find some of them that you agree with and some of them that you disagree with. Here is a scale ranging from 1 to 6. No.1 stands for completely disagree, and 6 stands for completely agree. In other words, the greater the number, the more you agree with the saying. No Saying 1 2 3 4 5 6 1 A family will be prosperous if it is in harmony 2 Haughtiness invites ruin; humility receives benefits 3 The best strategy to deal with changes is not to change at all 4 Children should report everything to their parents 5 Reflect on our faults when we take a rest 6 The new generation is worse than the old 7 I will treat my teacher as my father even though he has taught me for one day 8 Reject an old man’s advice and you’ll soon pay for it 9 An eye for an eye 10 Live as it is predestined 11 He who submits to Heaven shall live; he who rebels against Heaven shall perish 12 Do all that is humanly possible and leave the rest to the will of providence 13 When in Rome, do as the Romans do 14 Blessing abound in a family that perseveres in good deeds 15 Life and death are fated; wealth and honors hinge on the will of providence

Catherine Sarlandie de La Robertie and Cheng Baifang 100 No Saying 1 2 3 4 5 6 16 A family has its rules as a state has its laws 17 Forgive others whenever you can 18 At a different time and in a different place we will meet again 19 To have a son for old age is to stock provision for a rainy day 20 Children have to respect the decisions of their parents 21 Talk to people in their own language 22 Fate is predestined 23 Those against the laws should be punished 24 Live with your parents after marriage 25 Endure and you will find everything all right; retreat and you will find yourself happy 26 A man depends on his parents at home 27 Beyond a mountain, yet a higher one 28 Man can communicate with Nature and exist in harmony 29 If you honour me a linear foot, I should in return honor you ten feet 30 There is deceit in excessive courtesy 31 Shameful affaires of the family should not be spoken of outside 32 Unmarried children should make their parents well and strong 33 I won’t offend others unless offended 34 If we want to criticize others, criticize ourselves first 35 Of the three practices of unfilial piety, having no son is the greatest 36 Old parents are just like a treasure in your house when living with you 37 A man who can survive in hardship is the man of men 38 Better bend than break 39 To please someone without a cause is either adulterous or greedy 40 Never forget what others have done to you 41 Face is honoured by others; shame is sought by ourselves 42 No matter what you are doing, don’t go too far 43 It is more urgent to pay back favours than debts 44 Help each other whenever in need 45 I will return flavours and take revenge as well

Values in the Marketing of National Parks in China 101 第一部分：价值文化 性别： 年龄： 城市： 留法时间： 访问地点： 注：１表示非常不赞同，６表示非常赞同 序号 俗语 1 2 3 4 5 6 1 家和万事兴 2 谦受益，满招损 3 以不变应万变 4 孩子应该向父母汇报所有事情 5 一日三省吾身（有空常反省） 6 一代不如一代 7 一日为师终身为父 8 不听老人言吃亏在眼前 9 以牙还牙 10 听天由命 11 顺天者昌，逆天者亡 12 谋事在人，成事在天 13 入乡随俗 14 行善之家祝福多多 15 生死由命，富贵在天 16 家有家规，国有国法 17 宽以待人 18 有缘再相见 19 养儿防老 20 孩子应该听大人的话 21 见什么人说什么话（过什么山唱什么歌） 22 命中注定 23 违者必究 24 婚后应该和父母同住 25 忍一忍万事大吉，退一步海阔天空 26 在家靠父母 27 山外有山 28 人与自然和睦相存 29 敬我一尺，还人一丈 30 口蜜腹剑（过分殷情有欺诈) 31 家丑不可外扬 32 孩子应该使父母身心愉快 33 人不犯我，我不犯人

Catherine Sarlandie de La Robertie and Cheng Baifang 102 序号 俗语 1 2 3 4 5 6 34 批评别人之前先批评自己 35 不幸有三，无后为大 36 家有一老，胜有一宝 37 吃得苦中苦，方为人上人 38 留得青山在不怕没柴烧 39 无缘无故地讨好别人，要么是奉承要么是有所图 40 不要忘记别人给自己的好处 41 面子是别人给的，丢脸使自己找的 42 凡事不可以过分 43 还情紧过还债 44 在任何需要的时候都要互相帮助 45 逆来顺受

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